Stocks in Europe declined as markets reopened after a holiday amid hawkish comments by Federal Reserve officials and Russia’s renewed campaign in eastern Ukraine.

Travel and leisure stocks led the decline in the Stoxx Europe 600 index. The energy sector was in the green after crude oil’s best run of gains this year, while raw-materials stocks also rose as copper and other industrial metals climbed.

U.S. futures were modestly higher after stocks ended little changed Monday. Equities gained in Japan as the yen extended its longest losing streak in at least half a century. Hong Kong technology names declined on ongoing concerns over regulation. China dropped as investors assessed measures to tackle economic headwinds from Covid-led lockdowns.

Treasury yields steadied after the long end declined Monday. St. Louis Fed President James Bullard said that rate increases of 75 basis points -- while not the base case -- shouldn’t be ruled out as the central bank needs to move quickly to combat inflation. The dollar edged higher.

Disruptions to supply chains from China’s lockdowns and to commodity flows from the war are keeping pressures on central banks to act to rein in runaway prices at a time when global growth is tipped to slow. The World Bank cut its forecast for global economic expansion this year on Russia’s invasion.

“We see central banks normalizing quickly - but not slamming the brakes on the economy. This should keep real yields low and underpin equity valuations,” BlackRock Investment Institute strategists led by Wei Li, global chief investment strategist, said in a note.

In China, markets are also awaiting the release of banks’ benchmark lending rates on Wednesday after the People’s Bank of China reduced the reserve requirement ratio for most banks Friday but refrained from cutting interest rates.

The latest policy measures “have really highlighted easing is required,” Gareth Nicholson, Nomura chief investment officer and head of discretionary portfolio management, said on Bloomberg Television. “The markets don’t believe enough has been done and they’re gonna have to step it up but we think they will.”

Meanwhile, Ukrainian President Volodymyr Zelenskiy said Monday that Russian forces had begun the campaign to conquer the Donbas region in Ukraine’s east as Moscow continues moving troops and material into that part of the country.

Source:
courtesy of BLOOMBERG

by Andreea Papuc and Robert Brand

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