Stocks in Europe gain on commodities surge; treasuries decline

US 10-year yield heads for 2% as traders await CPI report

Stocks in Europe gained as commodity producers received a boost from rising metal prices and solid earnings. Treasury yields ticked higher and the dollar strengthened.

The Stoxx Europe 600 Index rose for a second day, with the basic-resources sector jumping more than 3 per cent as iron ore roared past $150 a tonne and aluminum headed toward a four-month high.

Rio Tinto Plc, Glencore Plc, and Anglo American Plc were among the biggest gainers. BP Plc advanced after reporting strong earnings and announcing a share buyback. 

On the downside, French lender BNP Paribas SA dropped as much as 4.5 per cent after fourth-quarter revenue lagged cost increases, while online grocer Ocado Group Plc slumped more than 11 per cent as full-year profit disappointed. S&P 500 Futures edged higher and Nasdaq-100 contracts were little changed after Wall Street stocks on Monday ended a choppy session in the red, hurt by the technology sector.

The 10-year treasury yield briefly rose above 1.95 per cent, a level last seen in December 2019. Some investors are predicting it could head as high as 3 per cent this year as the US Federal Reserve (Fed) battles the hottest inflation since the 1980s. The dollar gained against a basket of peers. A sell-off in European bonds eased.

Investors are awaiting data on Thursday expected to show stubbornly high US inflation. That could inject further volatility into financial markets bracing for a Fed cycle of rate hikes and eventual balance-sheet reduction. 

But the rise in yields could also support some equities, like banks and value stocks, according to Goldman Sachs Group, Inc., amid generally solid earnings.

“Markets will get used to the tightening regime at some point,” Chris Iggo, chief investment officer, core investments at AXA Investment Managers, wrote in a note, adding, “The growth and earnings forecast revisions in the next few months will be key.” 

Meanwhile, Chinese state-backed funds were said to have intervened in the stock market on Tuesday, helping the benchmark index stage a strong recovery from its biggest intraday drop since August 2021. The CSI 300 Index ended down just 0.6 per cent at the close, paring an earlier slump of 2.4 per cent.

Oil’s scorching rally took a breather, with attention turning to Iran nuclear talks that could lead to a resumption of official crude exports from the Persian Gulf producer.

Bitcoin declined for the first time in six days, falling below $44,000.

Investors are assessing the likely broader impact of the Fed policy, “particularly within credit markets”, Kristen Bitterly, head of North America investments at Citi Global Wealth, said on Bloomberg Television, adding, “That is what most investors are looking at right now in terms of what can actually inject volatility into the broader market.”

Elsewhere, traders were monitoring a flurry of diplomacy involving the French, Russian, US, and German leaders, trying to assess if the tension over Ukraine can be defused.