Banks lift European stocks as investors track bond moves

European shares gained on Monday, led by interest rate-sensitive banks and insurers as government bond yields continued to rise, while hopes of a peace deal in the Ukraine crisis further aided sentiment.

The pan-European STOXX 600 index climbed 0.7%, holding near pre-war levels hit last week. The benchmark is less than 8% away from its all-time high hit in early-January.

European banks jumped 2.3% following Wall Street’s gains on Friday, when bets of aggressive interest rate hikes by the U.S. Federal Reserve boosted financial shares.

U.S. and European benchmark bond yields jumped again on Monday, with a deepening inversion of the U.S. yield curve signalling that markets think recession risks are growing. [US/] [GVD/EUR]

“Markets have moved on from the geopolitical situation and the focus is very much on the Fed,” said Frederique Carrier, head of investment strategy at RBC Wealth Management. “We don’t seem to have reached peak inflation and therefore we haven’t seen peak hawkishness from the Fed either.”

Traders also lifted bets of rate increases by the European Central Bank in the face of surging inflation.

“Increased hawkishness on the Fed does make life more difficult for the ECB because the euro weakness is inflationary but we do think ECB is going to more focussed on growth than the Fed,” Carrier said.

Ukrainian President Volodymyr Zelenskiy said on Sunday the country was willing to assume neutral status and compromise over the status of the eastern Donbas region. More peace talks with Russia are set to take place this week in Turkey.

Meanwhile, oil prices tumbled more than $5 a barrel after financial hub Shanghai launched a two-stage lockdown to contain a surge in COVID-19 infections. [O/R]

German chemicals giant BASF gained 3.5% after HSBC upgraded the stock to “buy”, saying “resilient demand” will likely help first-quarter earnings.

Shares of European Apple (NASDAQ:AAPL) suppliers including STMicroelectronics and ams, slipped almost 1% after the Nikkei reported Apple is planning to cut the output of its iPhone and AirPods devices. Its Frankfurt-listed shares were down 1.0%.

Broadly, the tech sector was flat, while the Nasdaq futures pointed to losses of about 0.4% when Wall Street opens for trading.

Orpea slipped 0.8% on news the French government planned to file a criminal complaint against home care group over allegations of mistreatment of elderly patients.

In the UK, oil majors and Barclays (LON:BARC) kept the FTSE 100 under pressure. The British lender fell 2.9% after disclosing around a 450 million pound ($591.80 million) loss on mishandled structured products. (L)