By Nikhil Sharma
(Reuters) -European shares reversed early gains to trade lower on Thursday as rising long-term bond yields pressured equities ahead of the highly-anticipated European Central Bank’s rate decision.
The pan-European STOXX 600 was down 0.2% at 0940 GMT. The benchmark index rallied in the prior session after German leaders agreed to overhaul borrowing rules to boost defence spending and revive growth in the country.
Germany’s blue-chip index rose 0.7% after briefly hitting an all-time high. The index logged its best day in three years on Wednesday.
German government’s 10-year bond yields jumped 8 basis points to 2.86% after recording their biggest daily rise in more than 25 years the day before, as investors expected a sharp increase in Bund supply due to more fiscal spending.
Bund yields, the euro area’s benchmark, earlier in the session briefly hit 2.93%, its highest since October 2023.
Interest rate-sensitive real estate led sectoral losses and fell 1.4%.
Investors looked ahead to the European Central Bank’s rate decision, scheduled at 1315 GMT, which is likely to result in a quarter-point cut.
The focus will be on policymakers’ remarks about the central bank’s future moves as the monetary policy outlook seems to be obfuscated by the ongoing global trade war.
U.S. President Donald Trump last week floated a 25% tariff on imports of European cars and other goods, though he offered no details about his plans.
“Second guessing what’s coming out of Washington is very difficult. People are trying to be a little bit cautious and not get too caught up in the minute-to-minute or day-to-day news flow,” said Russ Mould, investment director at AJ Bell.
U.S. President Donald Trump on Wednesday exempted some automakers from his 25% tariffs on Canada and Mexico for one month as long as they comply with existing free-trade rules.
The automakers and components index jumped 1.6%. Shares of Volkswagen rose 3.1%, BMW gained 2.7% and Stellantis advanced 2.2%.
European banks rose more than 1% to a fresh record high. Deutsche Bank jumped 3.1% and was headed for its biggest two-day gain since 2011.
Among other stocks, DHL unveiled plans to cut about 8,000 jobs in Germany this year after reporting a 7% fall in its annual operating profit. The logistics group’s shares jumped 11.1%.
Shares of Lufthansa rose 7.2% on signs of a recovery in the second half of 2024 thanks to strong demand and lower fuel costs.
Comet Holding fell 11% to the bottom of the STOXX 600 after the X-ray technology maker posted its 2025 forecasts.
(Reporting by Nikhil Sharma; Editing by Sonia Cheema and Shinjini Ganguli)
