Investors watch inflation, monetary policy

LONDON – European markets pulled back slightly on Monday to begin a week of key central bank meetings and US inflation prints.

The pan-European Stoxx 600 was down 0.2% around an hour into trading, having earlier slid more than 0.7%. Tech stocks slid 1.3% to lead losses while banks jumped 1.2%.

Societe Generale led the gains for the European banking industry, climbing 6.4% after agreeing to sell its stake in Russia’s Rosbank and the Group’s Russian insurance subsidiaries to Interros Capital, ceasing all activities in Russia.

At the bottom of the European blue chip index, Finland’s Nokian Tires dropped more than 11% after announcing that new EU sanctions against Russian rubber will have a significant impact on its production.

Global investors will be watching the US consumer price index reading for March on Tuesday and producer price index on Wednesday for indications as to how drastically the Federal Reserve will have to act in order to rein in inflation. Several Fed officials are set to speak on Monday and could further sway market momentum later in the day.

US stock futures declined in early premarket trade on Monday as Wall Street comes off a losing week, with US Treasury yields continuing to climb following a Friday jump that saw the benchmark 10-year yield hitting a 3-year high.

Earnings season also kicks off stateside this week, with banking giants JPMorgan, Goldman Sachs, Wells Fargo, Citi and Morgan Stanley all due to report.

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Investors will also be keeping an eye on developments in Ukraine. Russia’s invasion of the country has caused volatility in oil and other commodities markets, which has, in turn, disturbed stocks.

European Central Bank policymakers will meet in Frankfurt on Thursday to discuss their next monetary policy move, faced with the tough task of weighing surging consumer prices against downward pressure on economic growth from the war in Ukraine.

“I expect continued draining of liquidity, rising interest and inflation rates, and so far we’ve had disruptions only on the supply side. It might spill over on the demand side, but that’s depending on developments in the war in Ukraine, and that can be expected to be prolonged in any case.

Beat Wittmann

Chairman, Porta Advisors

Beat Wittmann, chairman of Zurich-based Porta Advisors, told CNBC on Monday that the impending withdrawal of central bank liquidity, the growth and corporate earnings outlook and investor sentiment do not provide support for European risk assets in the near future.

“All these trends are either topping or are really negative, and depending on the war developments, inflation will be persistent and even spike, and central banks are very sharply focused on inflation and they have been lagging behind,” Wittmann said.

“Therefore, I expect continued draining of liquidity, rising interest and inflation rates, and so far we’ve had disruptions only on the supply side. It might spill over on the demand side, but that’s depending on developments in the war in Ukraine, and that can be expected to be prolonged in any case. “

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