LONDON — European stocks retreated on Friday, after global markets were roiled by a sudden spike in bond yields that sent investors fleeing highly valued segments of the market.
The pan-European Stoxx 600 fell 1% by noon, with basic resources shedding 3.7% to lead losses, while health care was the only sector in positive territory, adding 0.5%.
Shares in Asia-Pacific sold off sharply during Friday’s trade, led by a 3.99% decline for Japan’s Nikkei 225 while MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 2.99%.
U.S. stock futures also retreated amid a volatile premarket trade on Friday morning, after the pop in interest rates pushed the tech-heavy Nasdaq Composite to its worst trading session since October.
The yield on the U.S. 10-year Treasury note briefly surpassed 1.6% on Thursday, its highest in over a year, fueled by expectations for higher economic growth and inflation on the back of Covid vaccine rollouts, the prospect of significant fiscal stimulus from Washington and pent-up consumer demand. The 10-year rate mellowed considerably on Friday morning, last seen at 1.4805%, which softened the stock market losses.
“We perceive the recent moves in risk markets to be a bout of indigestion rather than a meaningful new change of direction for risk markets,” said Karen Ward, chief EMEA market strategist at JPMorgan Asset Management.
“The equity and bond markets had become misaligned in the early weeks of this year with stock prices being buoyed by a fiscal-fueled recovery, yet government bonds taking little notice. Perhaps bond investors placed too much faith in the willingness of central banks to intervene and keep yields low. Now the bond market is catching up with what is essentially an improved economic outlook.”
U.K. bond yields rose on Friday after Bank of England Chief Economist Andy Haldane warned that inflation may become difficult to tame, prompting more assertive policy action.
In Europe, corporate earnings reports came from British Airways parent IAG, LafargeHolcim, BASF, Deutsche Telekom, Suez and Engie.
IAG suffered a full-year operating loss of 7.4 billion euros ($9 billion), its largest in history, as the Covid-19 pandemic grounded aircraft around the world for a substantial portion of 2020. Shares climbed 4%, with hopes of a relaxation of global travel restrictions emerging.
“One could argue that the worst times could soon be over, particularly as people are starting to think about booking holidays again,” said Russ Mould, investment director at stockbroking platform AJ Bell.
“IAG is naturally reluctant to issue any earnings guidance for the new financial year, but one can’t help feeling there are grounds to be optimistic about it having significantly more planes in the sky in six to nine months’ time.”
In terms of individual share price movement, Belgian telecoms group Proximus slid more than 9% to the bottom of the Stoxx 600 after projecting lower core profit in 2021.
At the top of the European blue chip index, France’s Teleperformance climbed 6.5% after JPMorgan raised its target price for the stock following a strong earnings report Thursday.
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