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Saturday, February 24, 2024

European stocks hit 6-month low as bond yields rise

European stocks extended their retreat on Wednesday, with the benchmark index hitting its lowest level in over six months as bond yields rose, fueling concerns of prolonged high-interest rates.

The Stoxx 600 in London dipped 0.2% for a third consecutive session, while the yield on 30-year Treasuries reached 5% for the first time since 2007. In Europe, German 10-year yields climbed to 3%, a level not seen since 2011. Travel, leisure, and automaker stocks underperformed, while utilities made gains.

Among individual movers, Tesco Plc saw a rise in its share price after raising its profit forecast, while payments company Nexi SpA faced a decline following a negative catalyst watch by Citi analysts ahead of its results. Spirent Communications Plc also experienced a drop after issuing a profit warning.

The bond market sell-off has negatively impacted global stocks in recent days, with concerns that central banks may maintain higher interest rates for an extended period. The Stoxx 600 has sustained losses after two consecutive months of decline and is now slightly over 3% away from erasing its 2023 gains. Attention is now turning to the upcoming third-quarter reporting season set to begin later this month.

Marija Veitmane, senior multi-asset strategist for State Street Global Markets, expressed caution about the “higher-for-longer” interest rate environment, stating that it poses risks to both stock multiples and future earnings. Barclays Plc strategists also noted that stocks could face challenges without a “circuit breaker” in the bond market and warned of the potential for a “perfect storm” if the earnings season showed weakness, impacting investor sentiment and positioning.

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