European stocks edge higher, yields rise as markets adjust rate expectations

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European stock indexes opened slightly higher on Tuesday, while U.S. and European government bond yields rose to new multiyear highs as investors adjusted their expectations for rate hikes following hawkish comments from the U.S. Federal Reserve.

"With positioning light, sentiment weak and geopolitical risks likely to ease over time, we believe risks are skewed to the upside," wrote JPMorgan strategists in a note to clients."We believe investors should add risk in areas that overshot on the downside such as innovation, tech, biotech, EM/China, and small caps. These segments are pricing in a severe global recession, which will not materialize, in our view.

The conflict in Ukraine continued to weigh on sentiment. U.S. President Joe Biden issue one of his strongest warnings yet that Russia is considering using chemical weapons.Oil prices continued to rise overnight following news that some European Union members were considering imposing sanctions on Russian oil - although Germany said that the bloc was too dependent on Russian oil and gas to be able to cut itself off.But prices dropped around 0800 GMT, with Brent crude futures down 0.

The Japanese yen plunged past the 120 level versus the dollar, hurt by the divergent rate-hike expectations for the United States and Japan. "The perception that the JPY may become a funding currency rather than a safe-haven unit after the BoJ made it clear that they do not want to hike rates at present has further helped USD-JPY break above the key 120 threshold," UniCredit said in a client note.Register now for FREE unlimited access to Reuters.com

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