By Johann M Cherian
(Reuters) -European shares finished near one-month low on Tuesday after a broad-based selloff, driven by a rise in bond yields as investors grew increasingly concerned over fiscal pressures in economies worldwide.
The STOXX 600 index dropped 1.47% to close at 543.35 points, with rate-sensitive real estate the biggest drag with a loss of 3.5% that took it to a nearly five-month low.
Investors are worried about the sustainability of the debt of several countries in Europe and around the world, sparking a selloff in longer-dated German and French bonds. [EUR/GVD]
Yields on 30-year German bonds hit their highest since 2011, while their French counterparts hit their highest since 2009. Bond yields move inversely to prices.
France’s far-right National Rally is preparing for the possibility of snap elections, having said on Monday that it would bring down the minority government in a September 8 confidence vote.
“A big part of the story in quarter one was expectations that governments will start spending money … and that will generate corporate profitability,” Marija Veitmane, head of equity research at State Street Markets, said.
“Today seems to be the day where investors are now looking at the bond market much more closely and realising that perhaps everything isn’t as rosy as they might have thought,” said Daniel Coatsworth, investment analyst at AJ Bell.
European bond issuance of more than 100 billion euros ($117 billion) is planned in September and October.
As almost all STOXX 600 sectors traded in the red, the region-wide luxury index was the only exception.
Luxury stocks as a sector added 0.5% as fashion giants Kering and LVMH were both upgraded by HSBC to “buy” from “hold”. Kering rose 3.8% and LVMH gained 1.8%.
Among individual stocks, Swiss food giant Nestle dipped 0.7% after Chief Executive Laurent Freixe was removed for failing to disclose a romantic relationship with a subordinate.
Ferrari ended 1.9% higher as Deutsche Bank raised its rating on the sports car maker to “buy” from “hold”.
InPost dropped 12.5% after the Polish parcel locker company reported a fall in quarterly core earnings and a slowdown in core earnings growth.
Technip Energies rose 3.2% after JPMorgan re-rated the stock to “overweight”, calling the French group a “best-in-class” operator, well-positioned to win contracts.
Meanwhile, data showed euro zone inflation rose 2.1% in August on an annual basis, staying close to the European Central Bank’s 2% target and firming up bets the central bank will keep rates steady in the following meeting next week.
Policymaker Isabel Schnabel told Reuters that the ECB should keep interest rates steady as the euro zone economy is resilient in the face of U.S. tariffs and inflation may still prove higher than expected.
(Reporting by Tristan Veyet in Gdansk and Johann M Cherian in Bengaluru; Editing by Nivedita Bhattacharjee, Sonia Cheema and Barbara Lewis)
