Europe: Shares start week on shaky footing as bond yields rise
EUROPEAN shares ended lower on Monday as government bond yields rose amid warnings against premature rate cuts from European Central Bank officials, while beauty giant L’Oreal and lender HSBC dipped as separate brokerages turned bearish on their stocks.
The pan-European Stoxx 600 ended 0.5 per cent lower, as government bond yields across the region perked up after ECB’s chief economist Philip Lane said in an interview on Saturday that cutting rates too fast could fuel a new wave of inflation.
Separately, Bundesbank president Joachim Nagel, a known policy hawk, said it was too early for the ECB to discuss cutting interest rates.
Yield on the German 10-year bund, the region’s benchmark, last stood at 2.201 per cent.
“We do have this disjoint between market expectations and what central banks are planning on doing,” said Daniela Hathorn, senior market analyst at Capital.com.
“We could see some downside pressure for equities, especially in Europe, once markets adjust their expectations that rate cuts are inevitably going to come, but not as soon as expected.”
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Traders are still pricing in around 150 basis points of rate cuts this year, with a more than 20 per cent chance of the first cut coming as soon as March.
Basic resources was amongst the top declining sectors, down 1.0 per cent as most base metal prices came under pressure on a firmer dollar.
Personal and household goods lost 1.1 per cent as Swedish gaming group Embracer retreated 8.8 per cent.
Amongst headlining stocks on Monday, beauty giant L’Oreal dipped 4.8 per cent after UBS downgraded its rating to “neutral” from “buy”, while HSBC lost 2.2 per cent after Exane BNP Paribas cut the British lender to “underperform”.
Commerzbank moved up 0.8 per cent after talks of a merger with Deutsche Bank resurfaced, according to a source familiar with the matter.
Banks, however, ended 0.7 per cent lower.
Food delivery firms HelloFresh, Delivery Hero and Just Eat Takeaway fell between 4.2 per cent to 8.3 per cent after Exane BNP Paribas said it would “steer clear of the sector”.
Dassault Aviation lost 6.4 per cent after the French aircraft manufacturer reported 2023 aircraft deliveries below its target and Deutsche Bank downgraded its rating to “hold” from “buy”, dragging the industrials sector down 0.9 per cent.
On the data front, headline inflation in Sweden dropped to its lowest level since mid-2021 in December, while the German economy contracted 0.3 per cent in 2023. The German DAX 40 ended 0.5 per cent lower.
Also weighing on sentiment, China’s central bank left the medium-term policy rate unchanged, defying market expectations for a cut. REUTERS
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