Europe: Muted start to new quarter for shares as inflation fears resurface

EUROPEAN shares were subdued on Monday (Apr 3), after ending a volatile quarter higher, while Britain’s commodity-heavy FTSE 100 rallied as oil heavyweights jumped after a surprise announcement by Opec+ to cut production further lifted crude prices.

The pan-European Stoxx 600 index was flat on the first trading session of the new quarter, as a jump in oil prices stoked fears of persistent inflation.

Crude prices surged more than 5 per cent after the Organization of the Petroleum Exporting Countries and their allies including Russia (Opec+) announced further oil output cuts of around 1.16 million barrels per day on Sunday.

Oil and gas shares were the top gainers, with the sub-index rising 4 per cent, its best daily performance in over four months.

UK’s commodity-heavy FTSE 100 index added 0.5 per cent supported by over 4 per cent gains in oil majors BP and Shell.

A rise in US and European bond yields weighed on rate-sensitive technology shares, down 1 per cent. “The move by Opec+ is particularly unhelpful for central banks who, while being worried about sticky inflation, are becoming increasingly concerned about pushing rates up from their current levels,” Michael Hewson, chief market analyst at CMC Markets UK, said in a note.

“These concerns are especially pertinent given recent worries about financial stability, as yields edge back towards their recent peaks.”

European shares ended the first quarter higher despite a global banking crisis but concerns persist about higher interest rates nudging the global economy into a recession.

“A higher oil price is obviously good for energy producers, and the suggestion that it could lead to higher interest rates is good news for banks, as higher rates make it easier for them to make money,” said Stuart Cole, a head macroeconomist at Equiti Capital.

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Europe: Shares end volatile quarter higher

“But elsewhere, it is not such great news, as a tighter monetary policy will drag on demand, potentially curtailing spending.”

Travel and leisure shares shed 1 per cent.

S&P Global’s final manufacturing Purchasing Managers’ Index (PMI) for the eurozone fell to 47.3 in March from February’s 48.5, showing activity at struggling factories across the eurozone fell further last month.

Unicredit was up 3.0 per cent, as the bank started the first tranche of its share buyback programme on Monday of up to 2.34 billion euros (S$3.39 billion).

Logistics firm DSV fell 4.8 per cent after a share placement.

UBS was down 2.9 per cent after Switzerland’s Federal Prosecutor opened an investigation into the state-backed takeover of Credit Suisse by UBS Group. Credit Suisse shed 2.4 per cent. REUTERS