Europe: Stocks fall amid concern central banks turning hawkish

[LONDON] European stocks fell the most in nine months amid expectations for tighter central-bank policies in Europe and the US.

The Stoxx Europe 600 Index declined 1.3 per cent at the close. Bond-proxy utilities, technology companies and household-goods makers all slumped at least 1.7 per cent. The euro rose to the highest level in more than a year versus the dollar and the pound jumped as the UK central bank chief said that policy makers may need to begin raising interest rates.

As the first half of the year draws to a close, the Stoxx 600 is still poised to end the period 5.3 per cent higher. While technology stocks have been the second-best performers among industry groups this year, they've lost momentum recently. Energy shares have fared the worst.

The Stoxx 600 banks sector jumped to the highest in a month after every US lender passed annual stress tests for the first time since the Federal Reserve began the reviews in the wake of the 2008 financial crisis. Also boosting the sector is speculation of higher interest rates following central banker comments this week.

Utilities, which tend more to follow bonds, dropped with fixed income and after UBS Group AG cut the sector to neutral from overweight. It said valuations, especially relative dividend yields, no longer look attractive and the sector is "in need of a pause." The yield rose on Germany's 10-year government bond, Europe's benchmark, bringing its jump this week to 20 basis points, set for the biggest weekly increase since December 2015.

"Markets are quite nervous about central banks," said Andrea Tueni, a trader at Saxo Bank. "There is a kind of hawkish pivot by global central bankers that seems to have come in concert.

Exporter companies like Airbus for example are suffering from the spike in the euro - the automobile sector, luxury sector, Sanofi as well."

Construction companies tumbled, with builders in France dropping after that nation's government was said to consider cutting an infrastructure-investment program to reduce public spending.

Goldman Sachs Group Inc. added 16 new names to its basket of potential European M&A candidates, including Unilever, Akzo Nobel NV and EDP Renovaveis SA.

Hennes & Mauritz AB rose 2.7 per cent after it forecast at least 25 per cent growth in online sales this year, reporting second-quarter earnings that beat analysts' estimates.

BLOOMBERG