LONDON: European stocks suffered a sharp sell-off at the open on Monday, tracking big drops in Asia as growing inflation expectations and rising bond yields took their toll on equity markets.

Europe’s STOXX 600 sank 0.8 per cent, on track for its sixth straight day of decline, while eurozone stocks fell 0.6 per cent.

The pan-European index hit a two-month low in early dealing, having given back all the gains it made in the exuberant new year rally. German bond yields hit a two-year high as fears of inflation drove a sustained sell-off in bond markets.

Among major European equity markets, only Spain and Italy are still higher than at the turn of the year, with Britain the worst performer.

“Many sentiment and technical indicators were suggesting the market was overbought in late January, so part of this sell-off can be attributed more to technical than fundamental factors,” said Edward Park, investment director at Brooks Macdonald.

All sectors were in the red on Monday, but the sell-off hit the highest-valued parts of the market hardest, with tech stocks tumbling 1.3 per cent.

Chipmakers ASML, Dialog Semiconductor, Siltronic and BE Semiconductor fell 2 to 2.8 per cent.

“Growth sectors such as technology are particularly sensitive to expectations around future inflation and interest rates,” Park said.

“As their growth story is predicated on strong earnings further down the line, any change in the discount rate affects growth companies significantly more than value sectors.”

Eurozone businesses increased activity in 2018 at their fastest pace in over a decade as new orders surged, survey data showed. Company earnings provided little solace to investors.

Travel and leisure stocks were among the worst-performing, down 1.3 per cent as shares in airlines Air France, easyJet, IAG and Lufthansa fell.

Overall Europe has so far seen more earnings misses than beats for the first time since the fourth quarter of 2014, Morgan Stanley analysts said.

While the earnings season was still in its early days, Morgan Stanley also found post-results price performance showed a clear negative skew, indicating investors are quick to punish companies for missing earnings and sales expectations.

Analysts began revising earnings down last week, data showed, as the equities sell-off deepened.

Fiat Chrysler fell 1.5 per cent after sources told Reuters late on Friday that the US Justice Department was seeking “substantial” fines in the emissions case against the Italian carmaker.

While the data showed the region’s economic growth was sustained, it was not unambiguously positive for equities, as it could add to upward pressure on bond yields.

“Strong growth will provide little solace for equities or commodities if it pushes bond yields higher,” Societe Generale analysts wrote.

Reuters