By Amruta Khandekar
(Reuters) – European shares fell on Friday and were set to post their biggest weekly loss in three months as mounting fears about a wider Middle East conflict, surging government bond yields, and underwhelming earnings reports kept investors risk-averse.
The pan-European STOXX 600 hit its lowest level in seven months and was last down 0.6% by 0824 GMT, tracking a weak finish on Wall Street overnight.
The index is down nearly 3% for the week as concerns that the conflict in Gaza could spread in the Middle East and expectations of higher-for-longer interest rates further dented investor sentiment.
Federal Reserve Chair Jerome Powell on Thursday said U.S.
economic strength could require still tougher borrowing conditions, driving up longer-dated Treasury yields to the 5% mark.
“As bond yields jump upwards, the opportunity cost of investing in the stock market also increases, making equities a less attractive option,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown in a note.
“That’s a leading cause of the market malaise seen in recent trading sessions, and is likely to continue until the Treasury trajectory is back on less jumpy ground.”
Earnings from the region have done little to help sentiment, with analysts warning about further pressure on margins from rising energy prices and given the euro zone’s exposure to China.
Swedish garden equipment maker Husqvarna lost 7.6% after third-quarter revenue missed expectations.
Miners led declines, down 1.7%, weighed by a 6.6% drop in Boliden after weak quarterly results.
The travel and leisure index shed 1.6%, with InterContinental Hotels Group down 2.5% after quarterly net growth slowed.
Financial stocks were also a big drag, with shares of UBS down 1.9%.
The lender is set to overhaul the board of its domestic Swiss business after its takeover of Credit Suisse.
Tomra Systems sank 14.9% to the bottom of the STOXX 600 after missing third-quarter results estimates.L’Oreal fell 1% after a larger-than-expected hit to its travel retail business in Asia.
On the upside, Sika gained 1.2% after the chemicals firm reported a 5.6% increase in sales for the first nine months of 2023.
Investors are bracing for a big week ahead with earnings in full swing and as the European Central Bank holds a monetary policy meeting.
Data showed British retail sales fell more than expected in September.
(Reporting by Amruta Khandekar; Editing by Sonia Cheema and Eileen Soreng)
