European stocks on Friday closed lower, ending three weeks of gains as investors booked profits in technology and commodity-linked shares due to concerns over rising inflation and interest rates on the back of a jump in bond yields.
The benchmark STOXX 600 fell 1.64 percent to 404.99 and shed 2.38 percent for the week — its first weekly loss this month — with technology stocks losing the most as they continued to retreat from 20-year highs.
On the day, resource stocks were the softest-performing European sectors, tumbling 4.2 percent from a near 10-year high in their worst session in five months.
“Equity markets across the US and Europe are quite expensive now, and with bond yields constantly rising, the fixed income market is proving to be more attractive than the riskier equity market,” Societe Generale SA strategist Roland Kaloyan said. “Investors are actually looking at the pace at which yields drop and the current speed is quite concerning for equity markets.”
US and eurozone bond yields retreated slightly, but stayed close to highs hit this week as investors positioned for higher inflation this year. Yields were also set for large monthly gains.
BETTER RETURNS
Sectors such as utilities, healthcare and other staples — usually seen as proxies for government debt due to their similar yields — lagged their European peers for the month as investors sought better returns from actual debt.
Still, the STOXX 600 has gained this month, helped by a rotation into energy, banking and mining stocks on expectations of a pickup in business activity following COVID-19 vaccine rollouts.
Travel and leisure was the strongest sector this month as investors bet on an economic reopening boom. Banks also outperformed their peers thanks to higher bond yields.
Better-than-expected fourth-quarter earnings have also reinforced optimism about a quicker corporate rebound this year.
Of the 194 companies in the STOXX 600 that have reported quarterly earnings so far, 68 percent have beaten analysts’ estimates, according to Refinitiv.
In London, the export-heavy FTSE 100 marked its weakest session since late October last year, snapping three straight weeks of gains.
MINING STOCKS DOWN
The FTSE 100 slipped 2.53 percent to 6,483.43, declining 2.12 percent from a week earlier.
Mining stocks, including Rio Tinto Group, Anglo American PLC and BHP, were the biggest drags on the index, while oil heavyweights BP PLC and Royal Dutch Shell fell, tracking a decline in oil and metal prices.
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