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The European stock markets are heading for a negative close for the second consecutive week, as global government bond yields surged further after the US reported hotter-than-expected inflation data. The EU 10-year government bonds yield rose to a one-month high of 2.46%, and its US counterpart, the US 10-year Treasury yield hit 4.58%, the highest since November 2023. The yield on a government bond represents the interest rate at which the government borrows funds, typically reflecting market expectations regarding the central bank’s rate trajectory. Consequently, elevated yields often exert downward pressure on equity valuations, particularly for assets sensitive to interest rate movements.

Europe

The Stoxx Europe 600 Index fell 1.07%, the DAX slid 2.25%, and the FTSE 100 is down 0.17% over the past five trading days. Nine out of ten sectors in the Stoxx are experiencing losses, with real estate leading the decline, down by 2.36%, as the sector is the most sensitive to an increase in bond yields. Meanwhile, energy is the sole sector in positive territory, showing a gain of 1.91%, with Shell leading the gains with a rise of 4%, followed by BP, which added 1.64%.

In the FTSE 100, seven out of ten sectors are situated in negative territory over the past five trading days, with utility stocks leading the losses, down by 3.23%. Energy and materials are the two sectors counterbalancing the sell-off, both experiencing gains of 3.24% and 3.73%, respectively. The escalation in commodity prices has bolstered mining stocks, with Rio Tinto witnessing a rise of 3%, Anglo-American increasing by 3.69%, and Glencore up by 0.84%. AstraZeneca’s shares have surged by 3.8% following the announcement of a dividend increase, which has buoyed the healthcare sector.

Notably, banking stocks lost momentum after the ECB signalled a possible rate cut in June on Thursday as lower rates tend to impact lenders’ net interest income. Europe’s biggest bank, HSBC, fell 1.38% on Thursday, though its shares are still on a positive note for the week. The banking sector is down 2.19% in the last five trading days. UBS is among the biggest laggards, down 7.4% following some negative news this week. The bank is in discussions to sell its stake in Credit Suisse Securities (China) to the Beijing government fund. Additionally, there are indications that the Swiss government may increase the capital requirement to avoid a repeat of Credit Suisse’s collapse.

The banking stocks will be closely watched on Friday as the largest bank in the US, JP Morgan Chase, is scheduled to report its first-quarter earnings, which will likely influence market sentiment within this sector.

Wall Street

The US March headline Consumer Price Index (CPI) was reported at 3.5%, surpassing expectations of 3.4%, and exceeding the previous month’s figure of 3.2%. Additionally, its core CPI surged to an 11-month high of 4.8%. This data dashed hopes for potential rate cuts, leading markets to anticipate a rate cut by the Federal Reserve in September rather than in June.

Wall Street saw a swift rebound in its technology sector on Thursday after a sharp retreat following the hotter-than-expected inflation data in the previous session. On a five-day performance, three major benchmark indices are a mixed bag, with the tech-heavy index, the Nasdaq Composite, up 1.68%, the S&P 500 increasing by 1.01%, and the Dow Jones Industrial Index slightly lower by 0.1%.