European stocks slip on rate, earnings jitters

European stocks kicked off the week slightly lower on Monday as nerves around inflation and the upcoming earnings season offset surging commodity prices that supported oil and mining shares.

The pan-European STOXX 600 index (.STOXX) slipped 0.4 per cent in morning trading, with travel & leisure (.SXTP) and real estate stocks (.SX86P) the biggest decliners.

“There is still real concern about stagflation, with indications that prices are going to not be as transitory as central bankers first thought,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“It’s acting as a drag on the economic recovery.”

Brent crude jumped almost 2 per cent as an energy crisis gripping major economies showed no sign of easing, while Dalian coking coal scaled a contract high after a recent flooding in China’s top coal-producing Shanxi province intensified supply fears.

Miners (.SXPP) jumped 2.2 per cent to lead gains among sectors, while oil & gas stocks (.SXEP) added 0.8 per cent.

While a heavy presence of commodity-related companies in European bourses helped limit losses, investors generally were anxious about rising raw material prices hurting corporate profits heading into the earnings season.

U.S. banks will kick off the reporting season on Wednesday, with investors anticipating a moderation in profit growth in third quarter compared with a surge in the previous quarter. Third-quarter profit growth is estimated to be up 29.6 per cent for U.S. companies and 45.6 per cent for European firms, according to Refinitiv IBES data, according to Refinitiv IBES data.

The banking index (.SX7P) touched its highest since February 2020, recovering almost all of its pandemic-induced losses as investors jacked up interest rate expectations.