European Stocks Post Worst Monthly Decline in 11 on Yields Scare

(Bloomberg) -- European equities posted their worst monthly decline since October as concern over rising bond yields countered optimism about the economic recovery.

The Stoxx Europe 600 Index closed less than 0.1% lower in London after rising as much as 1% earlier. This brings the monthly loss to 3.4%. Travel, utilities and retail led the declines on Thursday, while miners surged as iron ore climbed. Financials and energy also outperformed. 

Eutelsat Jumps on Bid, Boohoo Shares Slump: EMEA Equity Movers

European stocks have been whipsawed this week by concerns over rising government bond yields, which put pressure on more expensive sectors, such as technology. The Stoxx 600 is down more than 4% from its August record high, with other worries including supply chain disruptions, surging power prices, China risks and the delta variant of Covid-19.

“We’re due a correction,” Nigel Bolton, co-chief investment officer of BlackRock Fundamental Equities, said in an interview. “Yields are going to move a little bit higher, so that big tailwind that you had for equities -- in terms of the valuations of equities -- is going to become more of a small headwind.”

“I would totally expect the market to de-rate further over the next 12 months,” he said, but added that it’s unlikely to be a “typhoon of destruction.”

This month’s best-performing sectors are energy and banks, more cyclical sectors that win from higher bond yields. Rates-sensitive sectors such as real estate and utilities were the worst performers.

Some are using declines in stocks as a chance to build positions. “Investors have needed to take these opportunities while they last because selloffs have tended not to amount to much,” Guy Foster, chief strategist at Brewin Dolphin, said in written comments. 

“Although active money sees the current environment as dangerous, longer-term investors wanted a pullback in the quality companies to deploy new capital,” added Foster.

Macroeconomic statistics, meanwhile, are painting a mixed picture, with U.K. growth stronger than previously estimated but labor data from Germany suggesting fading momentum in the country’s reopening boom. 

Among individual shares, Eutelsat Communications SA soared 15%, the most on record, after a report that billionaire Patrick Drahi made a bid valuing the French satellite operator at about 2.8 billion euros ($3.2 billion). Eutelsat confirmed it has received an offer, but has decided not to engage in discussions.

READ: Oxford Nanopore Pop Shows Sharp Divides in IPO Market: ECM Watch

DNA-sequencing company Oxford Nanopore Technologies Ltd. rose as much as 47% as it started trading in London, in one of the U.K.’s best-ever market debuts.

Boohoo Group Plc sank as much as 17% after lowering its forecast for sales growth and profitability as the online fast-fashion retailer was hit by shipping costs and supply chain disruption.

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