EUROPE MARKETS: Europe Stocks Head For Weekly Losses As Investors Grapple With Rising U.S. Bond Yields

By Barbara Kollmeyer, MarketWatch

Danske Bank leads banks south

Europe's main stock gauge was headed for its second straight losing session on Friday, again weighed by worries over rising U.S. bond yields, while trade tensions were also a factor.

What are markets doing?

A day after logging the worst session in seven weeks (http://www.marketwatch.com/story/european-stocks-slide-as-rising-bond-yields-buffett-equity-benchmarks-2018-10-04), the Stoxx Europe 600 was down 0.5% to 377.49. For the week, the pan-European gauge is down 1.4%, its worst weekly return since a 2.2% drop in the week ending September 7.

Germany's DAX 30 dropped 0.9% to 12,129, while France's CAC 40 fell 0.8% to 5,369.31, while the U.K.'s FTSE 100 slid 1.1% to 7,332.05.

Greece's ASX Composite slid 1.8% to 663.70, while Italy's FTSE MIB Italy index fell 1% to 20,387.69.

The euro was slightly up at $1.1526 compared with $1.1516 late Thursday in New York, while the pound traded at $1.30788, compared with $1.3020.

What is driving the market?

U.S. employment growth rose just 134,000 in September, falling short of expectations (http://www.marketwatch.com/story/unemployment-falls-to-49-year-low-of-37-as-us-adds-134000-jobs-in-september-2018-10-05), but the jobless level dropped to a 49-year low of 3.7%, indicating it remains tough for U.S. companies to find employers.

Led by Treasurys, global bond yields have been rising amid fears the Federal Reserve might just push too hard with interest rate increases. Increased return on Treasurys can make other investments such as stocks less attractive. The yield on the 10-year Treasury note was trading at a seven-year high at 3.229%.

Read:German manufacturing orders rebound in August (http://www.marketwatch.com/story/german-manufacturing-orders-rebound-in-august-2018-10-05-24855129)

As for Europe, two hot spots have been grabbing the headlines, with Greek banks under pressure on concerns they can't digest a mountain of bad loans and might need fresh capital (http://www.marketwatch.com/story/greek-bank-stocks-tumble-on-bad-loan-concerns-2018-10-03).

On Thursday evening, Italy's government, which has been in the spotlight, announced final budget targets (https://www.cnbc.com/2018/10/05/italy-government-announces-brave-and-responsible-budget-2019plan.html), cutting growth targets and sticking to its plan for a budget deficit target of 2.4% of gross domestic product, or GDP, in 2019.

Elsewhere fears over rising tensions between the U.S. and China were weighing on some tech names, along with a report from Bloomberg Thursday over Chinese spying via U.S. computers.

What are strategists saying?

"As budget details emerge, targets for the deficit in 2020 and 2021 have been revised lower and markets have been somewhat reassured by a more conciliatory tone toward Brussels coming from Rome," analysts at BlueBay Asset Management wrote in a note to clients. "We continue to see Italexit risk as extremely unlikely and materially overpriced."

The China spy story plays unfortunately into the hands of U.S. President Donald Trump, and is a headache for big tech names, said Joshua Mahony, Market Analyst at IG.

"Markets care most about the potential for a resolution to US-China negotiations, yet this news adds more to fuel to the fire, providing a likely extension to the timeline of any potential agreement," he told clients in a note.

Stock movers

Banks were the biggest losers on Friday, led by a 7.2% drop for Danske Bank AS after an internal memo seen by the Financial Times (https://news.google.com/articles/CBMiP2h0dHBzOi8vd3d3LmZ0LmNvbS9jb250ZW50L2YxM2FlNzdhLWM3ZjEtMTFlOC1iYThmLWVlMzkwMDU3YjhjOdIBggFodHRwczovL2FtcC1mdC1jb20uY2RuLmFtcHByb2plY3Qub3JnL3Yvcy9hbXAuZnQuY29tL2NvbnRlbnQvZjEzYWU3N2EtYzdmMS0xMWU4LWJhOGYtZWUzOTAwNTdiOGM5P2FtcF9qc192PTAuMSN3ZWJ2aWV3PTEmY2FwPXN3aXBl?hl=en-GB&gl=GB&ceid=GB%3Aen) that said the bank carried(DANSKE.KO) out mirror trades euros to allegedly launder Russian money.

Mining stocks were also a big decliner, with Anglo American PLC (AAL.LN) dropping 4% and Rio Tinto PLC (RIO.LN) (RIO.LN),

(END) Dow Jones Newswires

October 05, 2018 09:21 ET (13:21 GMT)

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