European shares plunge as bond market selloff intensifies

European equities opened with steep declines across all major bourses as a deepening market rout driven largely by pressure from bond markets continued to accelerate. The initial moves were:

• Eurostoxx -1.3%
• Germany DAX -1.0%
• France CAC 40 -0.9%
• UK FTSE -0.8%
• Spain IBEX -1.0%
• Italy FTSE MIB -1.4%

There is little cause for optimism in those figures, with Italy posting the steepest drop and every major index losing at least 0.8%. Investor sentiment remains fragile overall as market participants continue to deal with the consequences of the global bond selloff.

The 10-year Treasury yield is still hovering near multi-decade peaks, holding around 5.32% on the day, while borrowing costs in Europe are also under upward pressure. France's 10-year bond yield is edging higher once more, reaching 4.93%, and Germany's 10-year yield is also climbing to 3.50% amid ongoing worries over inflation and rising fiscal concerns. The spread between 10-year French and German yields is widening again to 143 basis points, after narrowing to just below 130 bps earlier this week.

However, as noted previously, the current focus is less on the yield spread itself and more on whether markets are beginning to price in contagion risk across Europe.

Additionally, higher oil prices are also weighing on market mood. WTI crude has bounced back above $91, while Brent crude is near $104. Renewed supply disruptions in the Middle East are keeping energy costs elevated, threatening to further complicate the inflation picture.

That pressure is also starting to weigh on US futures after Wall Street posted a negative session overnight. S&P 500 futures are now down 0.3%, and Nasdaq futures are down 0.5% as risk appetite dwindles during European morning trading.

With rising bond yields and higher oil prices continuing to dominate the narrative, equity buyers are finding little reason to step in. Unless some relief in borrowing costs emerges, the pressure on European stocks is likely to persist for some time.