European shares posted their worst day in two weeks on Tuesday as rising bond yields, worries about the war in Ukraine, and a batch of upcoming earnings kept investors on edge, while energy shares outperformed despite plunging oil prices.
The pan-European Stoxx 600 lost 0.8 per cent with defensive stocks including healthcare and consumer staples leading declines. All major regional equity markets were in the red.
But the index ended well off session lows as energy shares rose 0.5 per cent despite a 5 per cent slump in crude prices, and as Wall Street opened strongly on an earnings boost.
"It's a general concern about rising yields," said Andrea Cicione, head of strategy at TS Lombard. Bond yields in Europe and the United States surged on Tuesday on expectations for tighter monetary policy.
Ryanair was one of the biggest drags on the Irish markets, falling 1.8 per cent to €14.66, on the back of high oil prices and narrowing growth projections in ternationally, both of which threaten the airline's recovery from Covid.
In contrast, hotel chain Dalata was buoyed falling Covid case numbers and the possibility of more tourist numbers domestically, rising 3 per cent to €4.16.
As investors weigh up the likelihood of monetary policy tightening in the coming months, Ireland's two main banks had contrasting fortunes. AIB fell by 0.9 per cent to €1.92 while Bank of Ireland rose by 1.5 per cent to €6.24. Paddy Power Betfair owner Flutter was down 1.45 per cent at €102.15 while Cairn Homes was marginally up at €1.24.
UK shares closed lower on Tuesday, weighed by concerns about a slowdown in global economic growth and a series of negative brokerage actions, while electrical engineering firm Spectris climbed after announcing a unit sale and share buyback.
The blue-chip FTSE 100 edged down 0.2 per cent, with spirits maker Diageo, Dove soap maker Unilever and personal goods maker Reckitt Benckiser Group all falling between 2.1 per cent and 1.5 per cent. However, gains in commodity stocks limited the losses.
Oil majors BP and Shell were up 0.4 per cent and 1.6 per cent, respectively, after JP Morgan raised its price targets on the stocks.
Spectris gained 4.7 per cent after it announced the selling of specialist sensor maker Omega Engineering to private equity firm Arcline Investment Management for $525 million (€486 million) and a £300 million (€277 million) stock buyback.
ITV fell 3.6 per cent after Berenberg downgraded the broadcaster's stock to "sell" from "hold". ASOS dipped 1.2 per cent after Jefferies cut its price target on the online fashion retailer, while low-cost carrier Wizz Air dropped 5.4 per cent after Barclays lowered its price target.
Total Energies, BP and Shell were the biggest boosts to the Stoxx 600, up between 0.4 per cent and 1.6 per cent. "Energy is considered to be value. So when you get a material jump in bond yields as we are seeing today, you tend to get to see energy outperforming because it is still trading relatively cheap to other sectors such as consumer discretionary and several others," Mr Cicione said.
He added that upbeat earnings from US peer Halliburton might also be lifting energy majors on hopes that peers can follow suit. Meanwhile, the International Monetary Fund and the World Bank slashed their forecast for global economic growth by nearly a full percentage point, as Russia presses ahead with its war in Ukraine.
“Any suggestion that Ukraine tensions are going to be prolonged, or more violent, is enough to mute sentiment in markets,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
US stocks rose on Tuesday even in the face of surging Treasury yields as a positive earnings reports helped investors shrug off potential risks from an aggressive rise in US interest rates and the Ukraine war.
Johnson & Johnson rose 2.8 per cent to a record high as the drugmaker's quarterly profit exceeded market expectations and it raised the dividend payout. Halliburton gained 1.5 per cent after the oilfield services firm posted an 85 per cent rise in first-quarter adjusted profit, as a rally in crude prices boosted demand for its services and equipment.
Shares of megacap companies like Microsoft, Apple and Amazon, typically sensitive to bond yields, jumped more than 1 per cent despite hawkish comments from St Louis Federal Reserve Bank president James Bullard.
“The earnings season is taking some of the attention that had been hyperfocused on the correlation between yields and falling growth stocks,” said Art Hogan, chief market strategist at National Securities in New York. - Additional reporting by Reuters/Bloomberg