Europe midday: Shares extend gains as bond yields rise

European shares edged ahead at the start of the week as investors eyed a falling oil price and the potential fallout from a new lockdown in Shanghai as China battled its latest Covid outbreak.

The pan-European Stoxx 600 index was up 0.84% with all major regional bourses also higher, led by France and Germany, which made gains of more than 1.5%. Asia markets were largely higher overnight apart from Japan, which fell 0.73%.

Investors were also monitoring events in Ukraine as President Volodymyr Zelenskyy called for “peace without delay” and hinted at accepting neutrality for his country as Russian forces continued to shell cities as part of its unprovoked invasion of its neighbour.

Shares were also boosted by rising government bond yields as the US yield inverted, signalling that markets think recession risks are growing.

Oil prices fell as officials in Shanghai said China’s largest city with a population of 25 million would go into lockdown after a surge of Covid Omicron cases, stoking fears of reduced energy demand.

"European markets have started the week on a positive footing clinging to hopes that a peace deal between Ukraine and Russia could be in sight,” said Victoria Scholar, head of investment at Interactive Investor.

In equity news, shares in aircraft engine maker Rolls-Royce slumped having surged late on Friday after markets blog Betaville said it might be involved in a "significant corporate transaction, such as a merger or even a takeover offer for the business itself". According to Betaville, an unknown suitor may be in the early stages of weighing a deal "for or with Rolls-Royce".

Interactive's Scholar said that the shares had lost momentum "with nothing confirmed so far".

"However they are still trading significantly above Thursday’s close, suggesting there is still some M&A premium in the price with investors pinning their hopes on an approach."

Orpea shares were down as the French government said it planned to file a criminal complaint against the care home company after a month and a half-long investigation into the group’s management and financial practices.

Shares in UK bank NatWest were up after the company said it was buying back a 4.91% stake in the bank from the UK government for £1.2bn, taking the British taxpayers’ holding to below 50% for the first time since the financial crash of 2008.

Barclays shares were lower on news the bank expects to take a £450m charge and will delay a share buyback until the second quarter after issuing almost double as many US structured notes and exchange traded notes as it had registered for sale.