Yield surge hits European shares as Danske, Italy woes dent banks
Reuters
Published Oct 04, 2018 05:24AM ET
Yield surge hits European shares as Danske, Italy woes dent banks
By Danilo Masoni
MILAN (Reuters) - European shares fell on Thursday as defensive stocks came under pressure after strong U.S. data lifted global yields and bolstered expectations for rate hikes in the world's biggest economy.
The pan-European STOXX 600 (STOXX) benchmark index was down 0.6 percent by 0844 GMT, while Germany's DAX (GDAXI) declined 0.4 percent and the UK's FTSE (FTSE) fell 0.8 percent.
Data on Wednesday showed that U.S. services sector activity raced to a 21-year high in September, lifting Treasury yields to their highest since mid 2011. That in turn also boosted euro zone government bond yields on Thursday.
"The Treasury yield is commonly seen as the risk-free rate for investing, so an increase tends to be negative for other asset classes including shares," said Russ Mould, investment director at AJ Bell.
Defensive companies including consumer and healthcare stocks were the main drag on the STOXX 600. Rising yields make their steady dividend streams less appealing.
Brighter economic prospects also weighed on the sector, which had been in demand this summer on worries that trade wars could slow global growth.
Shares in big multinationals British American Tobacco (L:BATS), Nestle (S:NESN) and Novartis (S:NOVN) were down between 0.5 and 3.8 percent.
Utilities (SX6P), which tend to be penalized by rising yields also because of their high level of debt, fell 1.5 percent.
In contrast, financials tend to benefit from rising rates and bond yields, which help banks earn fatter margins on their traditional lending business.
German lenders Commerzbank (DE:CBKG) and Deutsche Bank (DE:DBKGn) rose 1.9 and 1.5 percent respectively, as German 10-year bond yields hit a 4-1/2 month high.
Italian banks were choppy as investors monitored developments in Rome, where the government is trying to finalize budget details after clashing with the EU over its deficit targets.
After opening lower, the Italian banking index (FTIT8300) turned higher and rose 0.9 percent.
Danske Bank (CO:DANSKE) fell 3.6 percent after news it was being investigated by the U.S. Department of Justice over a 200 billion euro money laundering scandal involving its Estonian branch.
"They are a perfect example of how regulators come down hard on banks who appear to have broken the rules," said Markus Huber, trader at City of London Markets.
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Among top movers on the STOXX was Danish maker of diagnostic devices Ambu (CO:AMBUb), which fell 6.6 percent after a strategy update, while British pharmaceutical firm BTG (L:BTG) rose 6.4 percent after it upgraded its sales forecast.
Written By: Reuters
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