Europe midday: Israel conflict, bond yields weigh heavily on stocks

European stocks dropped on Monday as fears of an escalation of conflict in the Middle East weighed on risk appetite, along with a continued sell-off of government bonds.

The pan-European Stoxx 600 index as down 0.8% by lunchtime, as mild losses in Milan (-0.4%), Paris (-0.4%) and London (-0.7%) offset by heavy falls in Frankfurt (-1%) and Madrid (-1.1%).

In Asia, China’s Shanghai Composite fell 1.5% on continuing worries over the country’s struggling property sector and high youth unemployment.

Ongoing international outcry surrounding the continued bombing of Gaza by the Israeli government was weighing heavily on investors' minds again, raising concerns that the conflict could spread – ignited further by reports of airstrikes now extending to the West Bank and Israeli forces exchanging fire with Hezbollah along the northern border.

In parallel, a spokesman for Israel's Defense Forces told ABC Radio Melbourne that the return of all hostages held by Hamas and the group's unconditional surrender would end the war.

“Escalating tensions in the Middle East and [U.S.] Treasury yields topping 5% for the first time since just prior to the great financial crisis are currently burdens which equity markets are finding difficult to bear,” said Interactive Investor head of markets Richard Hunter.

10-year US Treasury yields were up 8 basis points at 5.006% ahead of the opening bell on Wall Street, rising to levels not see in 16 years, while yields on German 10-year Bund yields were up 8 basis points at 2.971%.

Euro/dollar was little changed at 1.0596, along with Brent crude oil futures which were trading at $91.93 a barrel on the ICE.

Monday's European economic data calendar was relatively quiet, though things will pick up with the flash purchasing managers' indices for October due out on Tuesday ahead of the European Central Bank policy meeting on Thursday.

"The ECB is anticipated to keep interest rates unchanged following a series of ten consecutive rate hikes and maintain a subtle tightening bias at the upcoming Thursday meeting. Unless any unexpected developments occur, this meeting is likely to be uneventful," said Patrick Munnelly of Tickmill Group.

Volkswagen in reverse

Shares in German auto giant Volkswagen Group reached their lowest point since April 2020 on Monday after it announced a downward revision in its profit margin outlook for the current year, due to adverse impacts stemming from raw materials hedges. The company is expected to published its third-quarter results on Thursday. Shares were down 3% on the day at €112.70.

Swiss drug giant Roche was edging lower on the news it has agreed to buy Telavant Holdings from Pfizer and Roivant Sciences in a $7.1bn deal. The acquisition will give Roche access to RVT-3101, a novel antibody developed by Telavant as a potential treatment for inflammatory bowel diseases such as ulcerative colitis and Crohn’s disease.

Shares in Adevinta plunged 12% after reports overnight that private equity firms Blackstone and Permira were reconsidering plans to buy the Norway-based classified advertising company.