Europe open: Israel tensions continue to hit markets as stocks drop

The Europe Stoxx 600 Index dropped to a nine-month low on Friday as geopolitical tensions and surging bond yields continued to dampen risk appetite

“Markets remain unsteady and investors undecided, as rising Middle Eastern tensions and bond yields threaten to undermine any thoughts of an immediate rally," said Richard Hunter, head of markets at Interactive Investor. "The end of the week could prove to be similarly awkward, with many traders unwilling to take new positions ahead of a weekend when hostilities could yet worsen."

The Israeli military is continuing to gather forces along the Gazan border as it prepares for an expected ground offensive, though when that will happen is unclear.

The pan-European Stoxx 600 Index was down 1% at 435.41 – a level it has not closed below since January – with markets across Frankfurt, Milan, Madrid and Paris recording losses of 1.2% to 1.4%, while London fell a lesser 0.7%.

Powell speech hits stocks

Markets were following their US counterparts lower on Wall Street Thursday evening after Federal Reserve chair Jerome Powell indicated that monetary policy would likely remain restrictive for some time yet.

While he didn't go as far as saying that another rate hike was on the cards, he said that monetary policy wasn't "too tight right now" and that policymakers were "united in our commitment to bringing inflation down sustainably to 2%".

Following the speech, the yield on a 10-year US Treasury note reached a new high of 4.996%, setting fresh 16-year highs. German bunds also continue to be sold off, as yields on 10-year bunds continue their climb towards 3% – a level not seen since 2011; the 10-year yield was up 2 basis points at 2.918% early on.

Economic data

In European economic data on Friday, German producer prices suffered their worst year-on-year fall in September since records began in 1949, according to figures released by Destatis. Producer prices declined by 14.7% on the year following a 12.6% fall the month before and versus expectations for a 14.2% drop.

UK retail sales fell much more than expected in September as unseasonably warm weather dented clothing sales, according to the Office for National Statistics. Sales were down 0.9% on the month following a 0.4% increase in August, versus consensus expectations for a 0.2% decline.

UK consumer confidence fell sharply in October, a closely-watched survey showed, as growing economic uncertainty weighed heavily. The GfK UK Consumer Confidence Index fell nine points to -30 in October, reversing two months of improving scores.

Stock movements

Shares in Italian luxury fashion group Brunello Cucinelli jumped after the company guided to full-year revenue growth of 20-22%, above previous forecasts for an increase of 19%. The announcement came as it reported double-digit growth across all its markets, including a 50% rise in revenues in Asia.

In contrast, sector peer Salvatore Ferragamo sunk after reporting a 16% annual fall in quarterly sales due to macro headwinds.