European stocks inch higher as traders weigh prospect of more sanctions on Russia

European stocks edged higher on Tuesday, buoyed by utilities and energy companies, as investors weighed the prospect of an escalation of sanctions on Russia, including a potential ban on Russian coal and oil imports.

Europe’s Stoxx 600 index rose 0.3 per cent. The regional gauge’s oil and gas sub-index added 1 per cent, as Brent crude, the international benchmark, added 0.9 per cent.

London’s FTSE 100 and Germany’s Dax both lost 0.2 per cent. Futures contracts tracking Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq 100 index were flat in early European trade.

The moves came after the US and France called for a significant escalation of punitive measures against Russia, following reports of atrocities by its forces in Ukraine.

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French president Emmanuel Macron urged a ban on imports of oil and coal from Russia, though he did not call for a ban on imports of Russian natural gas — a vital fuel source for Germany, Italy and some eastern European countries. US president Joe Biden said he would “continue to add more sanctions” on Russia and called for a trial to assess possible war crimes committed by President Vladimir Putin’s forces in Ukraine.

Tancredi Cordero, founder of Kuros Associates, said the German economy “in particular will see its average input costs, when it comes to energy and commodities, rising considerably, which will dent operating margins of most domestic companies”.

“I don’t think there will be a recession [in Germany], it’s too strong an economy,” he added. “But in the short term, Germany will be reduced in terms of exposure by institutional investors.”

If not a full-blown recession, Europe could instead be set for a prolonged bout of stagflation, said Florian Ielpo, multi-asset portfolio manager at Lombard Odier Investment Managers, referring to a period of simultaneous high inflation and muted economic growth.

“This isn’t necessarily bad for equities,” he said. “If you’re a company well enough in your market to be able to push the surge in costs to consumers, you’re not really likely to suffer at the beginning of the inflation surge, and we’re still at the beginning.”

In government debt markets, the yield on the 10-year US Treasury note — which moves inversely to its price and is a benchmark for borrowing costs worldwide — added 0.04 percentage points to 2.45 per cent.

Germany’s sovereign bonds also came under pressure, with the yield on the 10-year Bund adding 0.04 percentage points to 0.56 per cent. The UK’s equivalent gilt yield added 0.06 percentage points to 1.61 per cent.

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