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European shares put in a modest bounce on Wednesday, with both stocks and bonds finding a bid following the steep losses seen in the previous session.
“Stocks are in rebound mode today after Tuesday’s drop, as some of the stagflation concerns ease and bargain hunters pile in,” said IG chief market analyst Chris Beauchamp.
“A small drop in Treasury yields has eased some of the pressure on equities, and with market internals approaching ‘washout’ levels again the urge to buy the dip has come storming back.”
The pan European Stoxx 600 benchmark index was up 0.59% at 455.03, alongside a 0.77% gain for Germany’s Dax to 15,365.27 while Spain’s Ibex 35 recovered 1.25% to 8,879.4.
Survey results showing unexpected further gains in business and consumer optimism in the Eurozone in September also helped to bolster investor sentiment.
Confidence in the eurozone unexpectedly improved in September after a drop in August, the European Commission said, boosted by optimism among consumers and in the industry and construction sectors and came despite a further rise in inflation expectations among manufacturers and consumers.
The Commission’s economic sentiment indicator rose to 117.8 from 117.6 in August, after hitting an all-time peak of 119.0 in July. Economists had expected sentiment to fall back further.
Sentiment in industry improved to 14.1 from 13.8 in August, although it fell in the services sector to 15.1 from 16.8. In construction, the indicator rose to 7.5 from 5.5 helping offset a decline in retail to 1.3 from 4.6.
In commodities, oil prices fell for a second day as the rally in crude fell away. Brent crude was down 0.61% at $78.61 a barrel and US light crude traded 0.45% lower to $74.95 a barrel with crude inventories in the US rising unexpectedly.
On Tuesday, prices had pushed beyond $80 as economies recover from the coronavirus crisis and demand increased.
Stocks in the US fell overnight as the benchmark 10-year Treasury yield touched a high of 1.567%, a move that prompted tech stocks to lead the broader markets lower with Facebook, Microsoft and Alphabet losing more than 3%.
Rising bond yields hurt growth stocks, including tech stocks, because they lower the relative value of future earnings.
“Once again it is fears about surging energy prices, supply chain disruptions, and concerns about more persistent inflation that is sparking a move out of the more highly valued areas of the stock market, as the volatility that we saw last week, continues into this week as bulls and bears indulge in a game of pass the parcel,” said CMC Markets chief market analyst UK Michael Hewson.
In the UK, queues formed again at petrol stations as panic-buying continued despite refineries reporting no shortage of fuel. The government finally mobilised 150 army truck drivers to help with the crisis.
In equity news, German food industry system supplier company GEA Group gained with a 1.85% rise, while British clothing retailer Next rose 4% as both reported positive results.
Anglo-Swiss drugmaker AstraZeneca was up after it said its newly acquired Alexion division will purchase the remaining equity in peer Caelum Biosciences in a deal that could be worth up to $500m.
Royal Mail plunged 8.81% to the bottom of the Stoxx after UBS downgraded the stock to ‘sell’ from ‘buy’.
