Europe midday: Shares rally despite bond market jitters
European shares rallied into positive territory on Thursday despite investor jitters over the spectre of US tariffs and persistent inflation, while rising bond yields were also in focus.
The pan-regional Stoxx 600 index was up 0.11% at 514. Britain’s FTSE 100 was up 0.46% amid concerns over a sell-off on Wednesday that has seen the pound slump against the dollar despite a sharp rise in government gilt yields, with Finance Minister Rachel Reeves under pressure as her fiscal headroom diminishes.
A weaker pound is generally supportive for FTSE 100 companies, most of which derive earnings outside the UK.
The yield on benchmark 10-year UK debt rose 12 basis points in early trading in London to 4.935%, its highest since 2008. For the 30-year bond - where yields hit a 28-year high this week – the rate was up 10 basis points to 5.474%.
On foreign exchange markets, the pound slumped to $1.2320, its lowest level against the US currency in 14 months. Against the euro it was 0.42% lower at €1.19.
In Germany benchmark Bund yields fell slightly but were still close to their highest level in almost half a year. The 10-year government bond yield was down 0.5 basis points at 2.52%, after hitting 2.524%, its highest since mid-July.
“Today, the UK’s demons are back, driven by heightened fiscal concerns – evoking memories of Liz Truss’s chaotic 'mini-budget’ days,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“Back then, markets lost confidence in the government’s spending plans, triggering an aggressive sell-off that forced the Bank of England to intervene. The fallout toppled Truss’s government, setting the stage for Labour’s strong electoral win.”
“But now, the newly-elected government, which promised to rescue the country, improve finances, and boost growth, faces its own reckoning. To deliver on its ambitions, it needs market support – a resource proving elusive.”
Trading volumes are expected to be thinner with US markets closed for the state funeral of former US President Jimmy Carter.
In equity news, UK retail shares took a hammering, with sausage roll specialist Greggs and discounter B&M Value Retail down 10 and 12% respectively. Marks & Spencer and Sainsbury’s also posted sharp falls.
Reporting by Frank Prenesti for Sharecast.com