By Nikhil Sharma
(Reuters) -European shares fell on Thursday as elevated long-term bond yields pressured equities and outweighed optimism around the European Central Bank’s decision to cut interest rates.
The pan-European STOXX 600 was down 0.7% at 1330 GMT.
The ECB reduced interest rates as expected and signalled more cuts may be in store as inflation normalizes, even as a looming trade war with the U.S. and plans to boost military spending drive Europe’s biggest economic policy upheaval in decades.
“Risks remain in Europe, but an overheating economy is not high on the list.
Interest rates could fall as low as 2% in 2025,” said Michael Field, chief equity strategist at Morningstar.
The German government’s 10-year bond yields jumped to 2.86% after recording their biggest daily rise in more than 25 years the day before, as investors expected a sharp increase in Bund supply due to more fiscal spending.
Interest rate-sensitive real estate stocks led sectoral losses and fell 2.8%.
The parties hoping to form Germany’s next government on Tuesday agreed to create a 500 billion euro infrastructure fund and overhaul borrowing rules, in a bid to revive Europe’s largest economy.
European banks index extended gains on optimism around the spending plans, rising 1.6% to a fresh record high on Thursday.
Deutsche Bank rose 2% and was headed for its biggest two-day gain since April 2020.
Meanwhile, U.S. President Donald Trump last week floated a 25% tariff on imports of European cars and other goods, without offering further details.
Trump on Wednesday exempted some automakers from his 25% tariffs on Canada and Mexico for one month as long as they comply with existing free-trade rules.
The automakers and components index jumped 1.3%.
Shares of Volkswagen rose 2.7%, BMW gained 3% and Stellantis advanced 1.3%.
DHL unveiled plans to cut about 8,000 jobs in Germany this year after reporting a 7% fall in its annual operating profit.
The logistics group’s shares jumped 10.5%.
Shares of Lufthansa rose 10.3% on signs of a recovery in the second half of 2024 thanks to strong demand and lower fuel costs.
British money manager Schroders added 9.7% after the company outlined plans to cut 150 million pounds ($194 million) of costs over the next three years.
Melrose fell 14.5% to the bottom of the STOXX 600 after the GKN Aerospace owner forecast 2025 revenue below most analysts’ expectations.
(Reporting by Nikhil Sharma; Editing by Sonia Cheema, Shinjini Ganguli and Devika Syamnath)
