European stocks are trading in the red mid-afternoon Wednesday, as investors lose confidence in stock markets when US 30-year bond yields have broken through the psychologically important 3% level. In addition, some upbeat Q1 earnings releases have failed to lift the benchmark stock indices.
By 1340 BST, the EUROSTOXX 600 was 0.86% lower, while the EUROSTOXX 50 was 0.93% in negative territory. Regional bourses were also downbeat. The German DAX lost 1.26%, the French CAC was down 0.60% and the Spanish IBEX had fallen 0.66%.
US bond yields rise
US bond yields rose in the US Tuesday and the benchmark 30-year bond yield pushed through the 3% level, before edging lower again.
However, the damage to the stock markets comes from the view that inflationary pressure in the US are building, which could spark more Federal Reserve interest rate hikes in 2018 than are currently anticipated.
To be clear, when bond yields rise, that means it’s a guaranteed return of 3% on any investment made into those bonds. That’s a healthy return and can make the potential returns from a risker stock market investment seem less attractive.
Investors make their financial choices to make money and they’ll pull funds out of one sector and put it into another if they’re confident that’s a move that will net them greater rewards.
The strength of the US 30-year bond yield rise is clear when strong earnings reports fail to lift indices at all.
Kering shares were 5.52% higher at €462.40 after its Q1 earnings release showed revenue growth of 26.9 and exceptional performances from the luxury brand group’s flagship business, Gucci. But, that marked gain wasn’t nearly enough to shift the overall investor tone.
Stock fallers in the Wednesday European trading session include:
- Lufthansa shares fell 3.21% to trade at €25.65.
- Clariant shares slid 6.42% to CHF23.47.
- Osram Licht shares sank 13.23% to hit €50.30.