European Stocks Post Sharpest Decline Since Late March Amid Rising Bond Yields

European Stocks Plummet as Oil Prices Rise and Inflation Fears Grow

European stocks experienced their largest decline since March, as a surge in oil prices fueled inflation concerns and contributed to a global bond selloff. The Stoxx 600 index fell 1.5% on Friday, as risk sentiment deteriorated in the face of rising bond yields. Rate-sensitive sectors, including banks, utilities, and real estate, showed broad weakness, while the decline in metals prices from gold to copper led miners lower after a strong week.

In contrast, energy stocks were a bright spot, with healthcare and consumer staples outperforming as investors sought defensive plays. The price of Brent crude rose above $109 a barrel after President Donald Trump stated that the US does not need the Strait of Hormuz to be open. Markets were also disappointed by the lack of commitment from Beijing towards ending the Iran war following Trump's summit with Chinese leader Xi Jinping.

The region's underperformance against US and Asian shares since the start of the Iran war is attributed to its increased exposure to the impact of higher energy prices on inflation and economic growth. Money markets are pricing approximately three interest rate hikes this year from the European Central Bank and Bank of England.

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ECB Governing Council member Yannis Stournaras warned that borrowing costs may rise if oil prices remain at current levels. Meanwhile, Huw Pill, the Bank of England's chief economist, stated that a rate hike may be necessary in the UK to combat inflation.

Individual stocks were also affected, with Salvatore Ferragamo SpA plummeting 18% after reporting disappointing first-quarter sales. LVMH Moët Hennessy Louis Vuitton also fell after announcing plans to sell the Marc Jacobs label to WHP Global.