European stock markets moved lower on Thursday as rising government bond yields and expectations surrounding the European Central Bank’s latest policy decision weighed on investor sentiment. Higher oil prices continued to fuel inflation concerns, increasing pressure on interest rate-sensitive sectors.
The pan-European STOXX 600 index slipped 0.8% in early trading after reaching a two-week high in the previous session, while Germany’s DAX and France’s CAC 40 each declined by more than 1%.
Rising oil prices push borrowing costs higher
The continued increase in global crude oil prices remained one of the main drivers behind the market’s weakness.
Ongoing disruption to shipping routes in the Middle East has renewed concerns that higher energy costs could trigger another wave of inflation, prompting investors to demand higher yields on European government bonds.
Rising bond yields typically weigh on equity markets by increasing financing costs for businesses while making fixed-income investments more attractive relative to stocks.
Markets await ECB policy announcement
Investors also adopted a cautious approach ahead of the European Central Bank’s latest monetary policy announcement.
Financial markets broadly expect policymakers to leave the benchmark interest rate unchanged at 2.25%. However, investors will closely monitor comments from ECB President Christine Lagarde for any indication that the central bank could consider raising rates later this year.
The prospect of interest rates remaining higher for longer has continued to temper expectations for a stronger recovery in European corporate earnings.
Corporate earnings provide mixed signals
Corporate updates offered a mixed picture across European markets.
Technology stocks found some support after Alphabet (NASDAQ:GOOG) announced higher capital expenditure plans alongside its latest earnings, a move expected to benefit European suppliers of semiconductor equipment, precision manufacturing technologies and digital infrastructure.
Consumer goods group Nestlé (TG:NESR) also outperformed expectations after reporting stronger-than-anticipated organic sales growth during the second quarter, highlighting resilient consumer demand.
Elsewhere, Nokia (NYSE:NOK) shares gained 6% after the telecommunications equipment maker reported second-quarter operating profit above market forecasts.
Among defence companies, Dassault Aviation (EU:AM) advanced 8%, while Thales (EU:HO) rose 4% following their respective quarterly results.
In contrast, STMicroelectronics (BIT:STMMI) dropped nearly 14% after investors reacted negatively to its second-quarter earnings update.
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