European stocks retreated for a second day as oil prices spiked and global bonds were sold off, with the average yield rising to levels not seen for almost two decades.
The Stoxx Europe 600 index dropped 0.5 per cent by the close in London. Brent crude rose by 4.4 per cent to $108 (€95) a barrel at one stage after an adviser to Iran’s supreme leader said in a video that the conflict with the US could reach the Indian Ocean in a next phase. Energy was the best-performing sector.
Tech shares weighed on the benchmark, reflecting concerns over rising borrowing costs as Treasuries extended declines. Yields on 30-year US bonds climbed to the highest levels since 2004, breaching Wednesday’s highs.
Dublin
The Iseq fell 0.88 per cent on the day. Ryanair shed another 2 per cent as worryingly high oil prices weighed on the budget airline’s value. Chief executive Michael O’Leary pledged this week the airline would not levy a fuel surcharge on passengers because of high jet fuel prices while predicting rivals will do so next summer.
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Wider macroeconomic uncertainties anchored both AIB and Bank of Ireland, which fell by 0.9 per cent and 0.5 per cent respectively. Kilkenny-based food group Glanbia bucked the trend, rising by 0.8 per cent to €19.91.
Europe
Among individual stocks, Hennes and Mauritz (H&M) retreated 2 per cent as tariff refunds masked a drop in its third-quarter profit margin. Hiab Oyj fell 8.7 per cent after the Finnish firm was cut to hold from buy by analysts at SEB on worries that growth will be hampered by lower-than-expected orders for the newly acquired Labrie business.
European shares had previously posted three weeks of straight losses as investors worried about the impact of elevated energy prices on inflation and interest rates.
Simon Wiersma, chief investment strategist at ING, said higher borrowing costs were becoming a more meaningful challenge for stocks.
“My base case is not that higher yields trigger a broad equity bear market, but they are likely to cap valuation expansion and make earnings growth increasingly important,” he added.
London
London shares fell on Thursday as continued fighting in the Middle East pushed oil prices to one-week highs, stoking inflation concerns worldwide and lifting government bond yields.
The blue-chip FTSE 100 index dipped 0.24 per cent to 10,679 points, while the midcap FTSE 250 slipped 0.85 per cent.
Industrial stocks were the biggest drags, with Rolls-Royce and BAE Systems down 1.3 per cent and 1.5 per cent respectively.
Home builder Vistry slipped 3.1 per cent after it lowered its annual profit expectations and said it would take a £470 million (€546 million) hit from its strategic overhaul.
Raspberry Pi jumped 19.6 per cent after the single-board computing company reported higher first-half revenue and pretax profit.
Bond markets were in focus again as UK gilt yields rose in line with global bond yields, with the benchmark 10-year gilt yield hitting a more than one-week high at 5.38 per cent.
British minister for finance John Healey may accept a smaller fiscal buffer to reduce tax rises in next month’s budget as investors signalled the gilt market would not be spooked by a more modest headroom target, the Financial Times reported.
New York
Wall Street’s main indexes dropped on Thursday as uncertainty over prospects for a resolution to the Middle East conflict lifted oil prices and Treasury yields, keeping risk appetite in check ahead of a keenly watched US-China summit.
US and Iranian leaders exchanged barbs at the United Nations General Assembly this week, which sent Brent crude prices back to above $100 a barrel. A potential ban of US diesel exports added to investor caution.
Technology stocks led declines on the S&P 500, with chipmakers such as Nvidia, Broadcom and Micron slipping more than 1 per cent each.
Oracle lost 5.5 per cent after a report said the company sent a ‘force majeure’ notice to a New Mexico data centre. Shares of Blue Owl, the project’s developer, also fell 5 per cent.
A rise in Treasury yields, with that on the 30-year Treasury bond reaching its highest since 2004, pressured riskier assets as the market priced in the likelihood of a long war and higher borrowing costs.
Faith in the artificial intelligence (AI) trade, which powered the Nasdaq to record highs earlier this week, has limited losses among riskier assets, analysts said.
“People were maybe less willing to chase stocks, but they didn’t seem particularly eager to sell them,” said Steve Sosnick, chief market analyst at Interactive Brokers. – Additional reporting: Bloomberg/Reuters
