By Elizabeth Howcroft
PARIS, May 13 (Reuters) – European stocks rose in early trading on Wednesday as markets rebounded from the previous session’s losses, and the price of oil edged down from recent highs even as hopes dwindled for a peace deal between the United States and Iran.
Wall Street stocks had fallen after U.S. inflation data on Tuesday showed consumer prices rose the most in three years, driven by an increase in energy-related costs.
The inflation data highlighted the economic fallout of the U.S. and Israel’s war on Iran, and pushed government bond yields up as traders saw it as increasing the chances that central banks will be forced to raise rates sooner than expected.
Market sentiment took a hit in Asian trade, but some signs of recovering sentiment emerged by 0939 GMT, with Europe’s STOXX 600 up 0.4% on the day. London’s FTSE 100 was up 0.3%.
Still, the 10-year U.S. Treasury yield was at 4.4629%, having hit its highest since late March. Japan’s 5-year and 20-year government bond yields hit new record highs overnight.
Oil prices edged back down, but were still elevated, with Brent crude at $107.3 a barrel, down 0.4% on the day and West Texas Intermediate at $101.45 a barrel, down 0.7% on the day.
The International Energy Agency said the world’s oil supply will fall short of total demand this year, as the war wreaks havoc on Middle East oil production. The two sides have made no progress on an agreement to end hostilities.
Markets were in “wait-and-see” mode as attention turns to U.S. President Donald Trump’s summit with Chinese counterpart Xi Jinping in Beijing later this week, said Amelie Derambure, senior multi-asset portfolio manager at Amundi in Paris.
“The preferred scenario for the market would be if China can influence the ceasefire or the peace in Iran but it’s considered relatively unlikely,” she said.
“This would be a positive surprise rather than the main scenario for markets at the moment.”
On Tuesday Trump said he did not think he would need China’s help to end the war with Iran.
Some ships have been able to pass through the Strait of Hormuz, and Reuters reported on Tuesday that both Iraq and Pakistan have cut deals with Iran to ship oil and liquefied natural gas from the Gulf, demonstrating Iran’s ability to control energy flows through the strait.
Derambure said investors now expect the Strait of Hormuz to open during the summer, but the market was “digesting the idea that the closure could last longer than was expected last week”.
