EU markets hover two-week lows as surging oil prices and elevated bond yields fuel fresh inflation concerns

2:09

European shares struggled for direction on Wednesday as investors weighed stronger energy stocks against renewed inflation concerns, elevated government bond yields and continuing geopolitical uncertainty in the Middle East.

The pan-European STOXX 600 was broadly unchanged at 652.36 points during morning trading on 19th August, remaining close to the two-week low reached a day earlier. Energy was the strongest sector, gaining around 0.6%, as Brent crude traded near $91 a barrel. Media shares fell around 0.7%, with WPP, Pearson and Publicis Groupe among the decliners.

Dan Coatsworth, head of markets at AJ Bell said, "Investors will be relieved that European stocks stabilised after bond market wobbles earlier this week". He added, "Bond yields had jumped on fears of new inflationary pressures and what that could mean for interest rates, triggering a shift in investor risk appetite."

Those concerns intensified after long-dated eurozone government bond yields climbed to their highest levels in more than a decade on Tuesday. Germany's 10-year Bund yield reached 3.261%, its highest since April 2011.

Middle East tensions remain central to the outlook. US President Donald Trump said no talks were taking place with Iran and maintained that the Strait of Hormuz was open, conflicting with Tehran's position that the strategically important waterway remained closed to shipping. Investors are also watching Europe's energy position ahead of winter.

Gordon Kerr, European macro strategist at KBRA said, "Markets are focused on whether Europe can replenish its gas storage at reasonable prices ahead of winter."

Despite market caution, corporate fundamentals remain encouraging. STOXX 600 companies are currently expected to deliver 24.1% aggregate earnings growth, with almost 60% of companies reporting so far beating analysts' forecasts.