(Bloomberg) -- European equities fell for the second straight day, touching a three-week low, as accelerating inflation in Germany lifted bond yields and prompted traders to pare bets on central bank easing. 

The Stoxx Europe 600 dropped 1.1% at the close in London, its biggest one-day slide in over a month, with miners as well as travel and leisure underperforming. Among individual companies, Royal Mail-owner International Distribution Services Plc gained after agreeing to a £3.6 billion ($4.6 billion) takeover by Czech billionaire Daniel Kretinsky. Anglo American Plc fell after rejecting BHP Group’s request for more time to commit to a takeover offer.

European stocks are still poised to end the month with gains, lifted by a better-than-expected earnings season and expectations the European Central Bank will start cutting interest rates as soon as next month. However, the marker has lost ground since mid-month as a series of stronger data prints, especially in the US, dashed rate-cut hopes. 

On Wednesday, bond yields in Europe and the US rose, with German 10-year yields hitting six month highs, after data showed consumer prices rose 2.8% from a year ago in May, up from 2.4% in April and above the 2.7% median estimate in a Bloomberg poll of economists. Treasury yields also rose to trade near a three-week high. 

Bond markets are reacting as stronger economic data “is bringing back the higher-for-longer narrative. This is generally bad news for stocks, especially European ones,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. 

“European indexes have larger concentrations of economically sensitive stocks that struggle in slower economic growth environment,” she added.

For more on equity markets:

  • History Won’t Help Predict the Impact of Rate Cuts: Taking Stock
  • M&A Watch Europe: Royal Mail Owner, Anglo, BHP, Traton, S Immo
  • The Forgotten UK-China Stock Connect Program Now Needs a Reboot
  • US Stock Futures Little Changed; Digital Turbine Falls
  • Put Up Or Shut Up: The London Rush

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--With assistance from Jan-Patrick Barnert and Sagarika Jaisinghani.

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