Europe stocks retreat after three-day rally as rising yields, oil prices dent sentiment

EUROPEAN shares edged lower on Wednesday (Oct 7) after three straight sessions of gains, as higher oil prices and an ascent in bond yields weighed on sentiment.

The pan-European Stoxx 600 index was down 0.3 per cent to 635.02 points by 0500 GMT, with banks leading sectoral declines and tech stocks easing from record highs.

BE Semiconductor Industries fell 7.2 per cent after UBS downgraded the Dutch chip-equipment maker’s stock to “sell”, citing risks to the adoption of chip-packaging technique hybrid bonding.

Autos, however, bucked the broader market weakness, rising 0.9 per cent after a report said that the European Union was considering limiting imports of Chinese hybrid vehicles into the bloc.

European stocks have come under pressure in the recent weeks, as a rout in the global bond market shows no signs of slowing as investors grapple with elevated energy prices, persistent inflation pressures and uncertainty over the interest-rate outlook.

Bond yields in US and Europe edged higher on Wednesday and French spreads widened on lingering concerns about France’s deteriorating fiscal situation ahead of next year’s presidential election.

Germany’s 10-year government bond yield was 1.6 basis points higher at 3.4969 per cent.

Oil prices rose nearly 1 per cent, with Brent and WTI gaining as traders weighed potential supply disruptions from a storm threatening US oil-producing regions and Houthi attacks on Saudi Arabia against higher Middle East crude supplies..

“There are continuing concerns about the situation in the Middle East. The main thing is there’s no light at the end of the tunnel,” said Angeline Ong, senior technical analyst at IG.

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“The other ongoing concern is how expensive borrowing costs are going ahead because of the situation with the bond yields.”

Attention now turns to the minutes from the Federal Reserve’s September meeting and remarks from Fed officials for fresh clues on the interest-rate outlook.

Expectations for another US rate hike this month have faded after weaker-than-expected jobs data, though markets still anticipate further tightening later this year and into next year.

Markets are also eyeing the third-quarter earnings season set to kick in later this month .

Third-quarter earnings for Stoxx 600 companies are expected to rise 19.4 per cent from a year earlier, LSEG estimates show. Excluding the energy sector, earnings are forecast to grow 9.9 per cent.

Among other stocks, UK’s Pennon Group shed 18.6 per cent after the water utility firm launched a fully underwritten £550 million (US$728.5 million) rights issue and lowered its dividend in a bid to fix operational problems. REUTERS