European Shares Seen Lower As Yields Hit Fresh Highs

European stocks look set to extend losses on Wednesday amid concerns that higher interest rates will result in a slower economic recovery.

The U.S. dollar held steady and U.S. Treasury yields hit fresh two-year highs as investors awaited the Federal Reserve’s Jan. 25-26 meeting for more signals on the rate hike timeline.

Markets now position for four or five rate hikes this year should inflation remain elevated.

Closer home, the European Central Bank is expected to tighten monetary policy once the spread of the omicron Covid-19 variant subsides.

Gold held near one-week low as expectations for a quicker-than-expected interest rate hike mount.

Oil prices rose over 1 percent to touch a 7-year high, thanks to a pipeline outage and geopolitical troubles in Russia as well as the United Arab Emirates.

Asian markets fell in cautious trading despite China’s central bank pledging to use more monetary policy tools to spur the economy.

The Office for National Statistics releases U.K. consumer and producer price data for December later in the day.

Consumer price inflation is forecast to rise to 5.2 percent in December from 5.1 percent in November. Economists expect factory gate prices to climb 9.4 percent annually after rising 9.1 percent in the previous month.

In the meantime, final consumer price figures are due from Germany. According to flash estimate, consumer price inflation rose to 5.3 percent in December from 5.2 percent in November.

U.S. stocks tumbled overnight as Treasury yields surged to two-year highs and Goldman Sachs posted quarterly profit that missed that missed market expectations.

The Dow lost 1.5 percent, the tech-heavy Nasdaq Composite sank 2.6 percent and the S&P 500 declined 1.8 percent.

European stocks closed lower on Tuesday after U.S. Treasury yields fell along the curve amid expectations the Federal Reserve will start hiking interest rate as soon as March.

The pan European Stoxx 600 shed 1 percent. The German DAX lost 1 percent, France’s CAC 40 index dropped 0.9 percent and the U.K.’s FTSE 100 slipped 0.6 percent.

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