European shares retreat as rising bond yields weigh

The German share price index DAX graph is pictured at the stock exchange in Frankfurt
FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, March 11, 2021. REUTERS/Staff

March 12, 2021

By Sruthi Shankar and Devik Jain

(Reuters) – Rising bond yields dragged European stocks lower on Friday, although major bourses were set for weekly gains as stimulus and vaccination programmes spurred hopes of a solid economic recovery.

The pan-European STOXX 600 index fell 0.5% after a four-session winning streak drove it to pre-pandemic highs a day earlier.

Tame U.S. inflation data and signs from the European Central Bank that it was ready to accelerate money-printing to keep a lid on borrowing costs helped boost risk appetite this week, putting the benchmark STOXX 600 on course for a more than 3% weekly gain.

However, with government bond yields in the United States and Europe rising again on Friday, investors took some money off the table.

“On one hand, we had the ECB that tried to talk down yields, but at the same time we had the final approval of the big Biden stimulus package that drove U.S. yields somewhat higher again,” said Bert Colijn, senior euro zone economist at ING.

“So this maybe an American story that will remain in the driver’s seat to a degree, with the ECB as an important counterweight to that.”

U.S. President Joe Biden signed a $1.9 trillion stimulus bill into law on Thursday, with direct deposits from the legislation expected to go to Americans as early as this weekend.

While the stimulus is expected to give a boost to the U.S. economy, it has also raised worries about a spike in inflation that could push central banks to tighten monetary policy.

Tech sector fell the most in Europe, down 1.7%, while automakers and miners also weighed.

Dutch tech investor Prosus, which holds a third of Chinese tech giant Tencent Holdings, dropped 4.9% as China’s market regulator fined 12 companies including Tencent related to deals that demonstrated illegal monopolistic behaviours.

German carmaker Daimler declined 2.5% after French rival Renault sold its entire stake in the company at a discount.

BMW was down 2.2% after saying its operating profit for 2020 fell due to the COVID-19 pandemic, despite a strong second-half rebound in sales.

British luxury group Burberry jumped 8.4% to the top of STOXX 600 after saying it had seen a strong rebound in sales since December.

Italy’s Brunello Cucinelli surged 10.8% after the luxury goods maker raised its sales forecast for the year on expectations that the end of the pandemic was near.

(Reporting by Sruthi Shankar and Devik Jain in Bengaluru; Editing by Subhranshu Sahu and Anil D’Silva)