European shares edged lower on Monday as government bond yields rose on warnings of premature rate cuts from the European Central Bank, while losses in Dassault Aviation's shares on missing aircraft delivery target added to declines.
The pan-European STOXX 600 was down 0.1% lower by 0934 GMT, dropping from a 0.2% rise in early trading.
Euro zone government bond yields rose during the session as investors digested comments from the ECB's chief economist Philip Lane, who said in an interview on Saturday that cutting rates too fast could fuel a new wave of inflation. [GVD/EUR]
The euro zone's benchmark German 10-year yield last stood at 2.184%.
"We do have this disjoint between market expectations and what central banks are planning on doing," said Daniela Hathorn, senior market analyst at Capital.com.
"We could see some downside pressure for equities, especially in Europe, once markets adjust their expectations that rate cuts are inevitably going to come, but not as soon as expected."
Traders are still pricing in around 150 basis points of rate cuts this year, with a near-30% chance of the first cut as soon as in March. [0#ECBWATCH]
Shares of Commerzbank (ETR:CBKG) moved up 1.5% after talks of a merger with Deutsche Bank resurfaced, according to a source familiar with the matter.
Banks, however, were down 0.4% as HSBC lost 2.1% after Exane BNP Paribas (OTC:BNPQY) cut the British lender to "underperform" as the brokerage expects "under-appreciated" margin headwinds for the firm.
Dassault Aviation fell 5.6% after the French aircraft manufacturer reported 2023 aircraft deliveries below its target and Deutsche Bank downgraded the Rafale fighter jet maker to "hold" from "buy", dragging the industrials down 0.2%.
On the data front, headline inflation in Sweden dropped to its lowest level since mid-2021 in December, spurring hopes the central bank may shift policy and start cutting rates sometime around the middle of the year.
Separately, data showed the German economy contracted 0.3% in 2023. The German DAX 40 was down 0.1%
Among other major movers, Atos slid 11% after the French technology company said its free cash flow would be slightly below its target in the second half of the year.
The firm also named Paul Saleh as its new chief executive officer.
SoftwareOne dropped 11.8% after the Swiss software management company rejected an offer from Bain Capital and said it wants to remain independent.
Source : Economy News by Reuters / Jan 15, 2024