European stocks declined as regional bond yields climbed, denting the appeal of equities and fueling concerns about the economic impact of higher borrowing costs. The Stoxx Europe 600 dropped 1% by 11:19 a.m. in London to the lowest since June, led by losses in banking and consumer products stocks. The FTSE 100 Index retreated 1.5%, making it one of the worst-performing regional benchmarks, as the 30-year gilt yield climbed to 6% for the first time since 1998.
In individual stocks, Pandora A/S retreated as much as 5% after Chief Executive Officer Berta de Pablos-Barbier said she is seeing US demand stabilize at a low level as consumers grapple with inflation and high gas prices. Davide Campari-Milano NV advanced after Bank of America Corp. raised it to buy from neutral. Bank shares have been outperformers in Europe for six years but are coming under pressure as yields climb.
"Even financials have started to underperform, as higher yields have led to a widening in high-yield credit spreads, with banks most exposed if defaults among the weakest borrowers were to pick up," said Wolf von Rotberg, equity strategist at Bank J Safra Sarasin. Rising yields generally lessen the appeal for equities as bonds turn into a clearer alternative. The pan-European benchmark snapped its five-month winning streak in September as Middle East tensions kept oil prices elevated and global bond yields moved higher. Inflation remains a key focus for investors after hotter-than-expected readings from France, Italy and Switzerland. Brent crude climbed 2.4% to about $100 a barrel Thursday, fanning the concerns about price pressures. Investors were also watching for news out of France as the government prepares to unveil plans to sharply narrow its budget deficit and will also auction a series of longer-dated government bonds later today. Stephan Kemper, chief investment officer at BNP Paribas Wealth Management Germany, said the CAC 40’s weak performance this year, along with doubts about Germany’s growth outlook, is weighing on investor sentiment.
"The toxic mixture of pressing bond yields, political uncertainties and high budget deficits is not only hitting bonds but equities as well," Kemper said.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing