Following a five-day rally, European stocks were down on Wednesday. Financial services providers, however, edged forward as bank shares climbed, mirroring the rise in US bond yields.
The pan-European Stoxx 600 Index was down by 0.53%, London's FTSE 100 Index was up by 0.14%, after dropping to 0.01% earlier in trading, Frankfurt's DAX was 0.95% lower and Paris' CAC-40 was 0.43% lower at the time of writing. The Nikkei 225 was also down by 0.26%.
European equity benchmarks reversed gains as 10-year Treasury yield jumped close to 2.6% after a Bloomberg report that Chinese authorities viewed US government bonds as less attractive.
Craig Erlam, senior market analyst at Oanda, said in a note: “If the reports turn out to be true and China no longer sees Treasuries as an attractive option, the repercussions could be significant as the country is one of the biggest holders of US debt. A significant change in policy could put considerable upside pressure on US yields, the result of which would be an effective tightening for the US.”
Banks shares rise
Higher long-term yields can help lift profit at banks. The Stoxx Europe 600 Bank Index FX7 leapt 1.3%, headed toward its highest since November 2015, according to FactSet data.
Royal Bank of Scotland shares were up 4.6% after a ratings upgrade to overweight from equal-weight at Morgan Stanley. Barlays was downgraded to equal-weight from overweight but shares were still up by 0.05%. Metro Bank was up 4.23%, HSBC by 3.33% and Standard Chartered by 4%.
Michael Hewson, chief market analyst at CMC Markets, in emailed comments said that the price action in Asia and Europe was a perfect excuse for a “bit of profit making”.
He said: “A little bit of risk-off in the Nikkei and DAX appears to be weighing on early premarket indications of a lower US open for the S&P 500 and the Dow.”