Europe open: Shares fall as traders bet on rate rises

European shares were sharply lower at the opening on Tuesday with rising bond yields putting equities under pressure as traders punted on an early rise in US interest rates.

The pan-European Stoxx 600 index fell 1.10% as tech stocks came under pressure. Meanwhile, oil prices rose to a seven-year high on worries about possible supply disruptions after Yemen's Houthi group attacked the United Arab Emirates. The news boosted oil giants BP and Shell.

Investors now expect the US Federal Reserve to start lifting interest rates from March in an attempt to tame inflation while UK labour data on Tuesday beat expectations, making a rate rise in early February extremely likely.

Data released earlier by the UK's Office for National Statistics showed the unemployment rate had eased, as companies continued to hire more staff despite the emergence of the Omicron variant.

There were 29.5m payrolled employees in the UK in December, up 184,000 on November’s revised figure, and 409,000 higher than in February 2020. Analysts had been looking for an increase closer to 125,000.

The broader unemployment rate for September to November eased by 0.4 percentage points to 4.1%, marginally below consensus for 4.2%. The rate is now just 0.1 percentage points higher than before the pandemic.

"European markets have opened lower with technology underperforming amid concerns about faster tightening from the Fed and rising yields as Britain’s 10-year gilt yield hits a three-month high and Germany’s 10-year government bond yield rises to the highest since May 2019. US markets get set to reopen after Monday’s holiday with futures pointing to a softer open," said Victoria Scholar, head of investment at Interactive Investor.

In equity news, Vivendi shares were lower after the company said it was investing in digital communication group Progressif Media through the purchase of an 8.5% stake from ZeWatchers.

French food caterer Sodexo jumped on reports Bain Capital was looking to bid for a stake in its benefits and rewards services unit.

THG shares slumped to the bottom of the Stoxx after the UK online retail platform reported a 29.7% rise in fourth-quarter revenue, but said its adjusted core earnings margin would fall short of market expectations due to adverse currency movements.

888 Holdings lost ground even as the online betting and gaming company said full-year revenues had grown year-on-year despite a drop in the final quarter of 2021.