European stocks edged higher on Thursday as markets attempted to stabilize after a sharp sell-off earlier in the week.
A global bond market rebound and more cautious comments from a senior Federal Reserve official helped ease pressure on risk assets.
The pan-European STOXX 600 rose 0.12%, ending a three-session losing streak after falling to a more than one-month low on Wednesday.
Germany’s DAX gained 0.2%, while France’s CAC 40 and the UK’s FTSE 100 traded close to unchanged.
European Stocks Recover From Recent Lows
European markets have faced a difficult start to September.
A sharp sell-off in sovereign bonds pushed global yields to multi-year highs, while rising energy prices and expectations for higher interest rates weighed on investor sentiment.
German 10-year Bund yields climbed as high as 3.37%, their highest level since 2011.
Meanwhile, U.S. 10-year Treasury yields approached 4.80%.
Higher bond yields can make equities less attractive, particularly growth and technology stocks. They can also increase borrowing and refinancing costs for companies.
Iran Tensions Push Oil Above $90
Geopolitical tensions added further pressure to European markets earlier in the week.
Military exchanges between the United States and Iran around the Strait of Hormuz pushed crude oil prices above $90 per barrel.
The surge renewed fears that higher energy costs could increase inflation and complicate plans by central banks to ease monetary policy.
The combination of higher yields and stronger oil prices pushed Germany’s DAX and France’s CAC 40 toward recent lows.
The FTSE 100 also suffered its sharpest one-day decline in nearly two months before showing signs of stabilization.
Fed Comments Ease Rate Hike Fears
A major factor behind Thursday’s calmer trading was a shift in expectations for U.S. interest rates.
New York Federal Reserve President John Williams said policymakers should wait for more economic data before deciding whether additional monetary tightening is necessary.
His comments reduced expectations for an immediate rate hike at the Federal Reserve’s September meeting.
Weak U.S. Payrolls Support Bond Markets
Softer U.S. labor market data also helped ease concerns over higher interest rates.
Private payrolls increased by only 38,000 jobs in August, coming in below market expectations.
The weaker ADP employment report suggested that the U.S. labor market may be cooling.
That triggered a rebound in U.S. Treasuries and Asian government bonds, helping European bond yields retreat from recent highs.
Investors are now watching comments from Federal Reserve Governor Christopher Waller for further clues on whether policymakers could pause or raise rates at the September 16 meeting.
Lower Oil Prices Offer Additional Relief
Oil prices also moved lower on Thursday after their recent surge.
The decline provided some relief to European industrial companies, which can be particularly sensitive to higher energy costs.
Lower oil prices could also reduce inflation concerns if the decline continues.
Eurozone Inflation Data Comes Into Focus
Investors are now turning their attention to upcoming Eurozone Producer Price Index data.
The report will provide fresh information on inflation at the factory level.
Markets will use the data to assess whether price pressures are easing enough to give the European Central Bank more flexibility ahead of its September 10 monetary policy meeting.
Deutsche Telekom Rises on Elliott Stake
Among individual European stocks, Deutsche Telekom rose around 1.4%.
The move followed reports that activist investor Elliott had built a stake in the telecommunications company.
European Markets Await More Rate Signals
European stocks remain sensitive to global bond yields, energy prices and expectations for central bank policy.
Thursday’s modest recovery provided some relief after the recent sell-off, but investors remain cautious.
Further guidance from the Federal Reserve, upcoming Eurozone inflation data and developments in the Middle East could determine the next direction for European markets.
