European shares dip as oil rally and Fed rate hike fears weigh

To begin the week, European equity markets are trading largely in negative territory, driven by a further rise in oil prices that exacerbates inflation concerns and weighs on risk appetite across the globe.

• Eurostoxx -0.6%
• Germany DAX -0.3%
• France CAC 40 -0.4%
• UK FTSE +0.3%
• Spain IBEX -0.3%
• Italy FTSE MIB -0.5%

Elevated oil prices and rising bond yields continue to be the dominant narrative in financial markets.

Brent crude has risen to more than $107 a barrel, while WTI crude is above $102, following fresh strikes on Saudi energy facilities and additional warnings about disruptions to shipping in the Middle East. This is heightening fears that the energy price surge will sustain higher inflation for a longer period.

This message is being reinforced by the upcoming Federal Reserve policy meeting this week. After stronger-than-expected US inflation figures and the recent climb in energy costs, traders now see around an 87% chance that the Fed will raise interest rates.

Additionally, the yield on the US 10-year Treasury note is near the 5% mark, presenting another headwind for stock valuations. This is also visible in the cautious stance seen in US equity markets.

S&P 500 futures are 0.6% lower, while Nasdaq futures are off by approximately 1.5%, as market participants brace for the Fed's decision on Wednesday amid these various pressures.

Overall, the tone is risk-averse across global markets, with the US dollar strengthening, equities declining, and precious metals also falling at the start of the trading day.