Europe stocks hit lowest in more than six months as bond yields advance

BLOOMBERG
A retreat in European stocks deepened on Wednesday, sending the benchmark index to the lowest in more than six months as bond yields climbed on worries of higher-for-longer interest rates.
The Stoxx 600 was down 0.2% in London, sliding for a third straight session as the yield on 30-year Treasuries hit 5% for the first time since 2007. In Europe, German 10-year yields rose to 3% for the first time since 2011. Travel and leisure stocks and automakers underperformed, while utilities gained.
Among individual movers, Tesco Plc rose after boosting its profit forecast while payments company Nexi SpA fell after analysts at Citi opened a negative catalyst watch on the payments company ahead of its results. Spirent Communications Plc sank after a profit warning.
The selloff in the bond market has hammered global stocks in recent days on concerns that central banks will keep interest rates elevated longer than expected. The Stoxx 600 has extended losses after dropping for two months in a row, and is now just over 3% from erasing its 2023 gain. Focus is also now shifting to the third-quarter reporting season, which kicks off later this month.
“Higher-for-longer is a very dangerous backdrop for stocks as both multiples and future earnings are pressured,” said Marija Veitmane, senior multi-asset strategist for State Street Global Markets. “We have a negative medium-term outlook for stocks in general, and in terms of relative bets we prefer quality, defensive growth, large caps to value, cyclicals and small caps.”
Barclays Plc strategists also said stocks were likely to struggle without a “circuit breaker” in the bond market. While a solid earnings season had the scope to fuel a year-end rally, any signs of weakness would feed into “the perfect storm,” which seems closer to investor positioning and sentiment, strategist Emmanuel Cau wrote in a note.