Europe Stocks Slump on Yellen Warning

European stocks slumped Thursday, mirroring moves on Wall Street and in Asia after U.S. Federal Reserve Chairwoman Janet Yellen suggested the yearslong stock rally may have driven prices too high.

Stocks have had a bumpy ride in recent days, hit by a broad and fierce reversal in the direction of equity, debt and currency markets, and on Thursday the Stoxx Europe 600 fell nearly 1% in early trade, taking its losses since the start of May alone to close to 3%.

Ms. Yellen made the remarks in a conversation with International Monetary Fund Managing Director Christine Lagarde in Washington on Wednesday.

"It's sometimes said that when policy-making, if you are offending everybody you must be doing something right," strategists at Rabobank wrote in a note. "Janet Yellen will be hoping that's the case."

Germany's DAX declined 0.6% and France's CAC was down more than 1%, taking losses this month to 1.6% and 2.3% respectively.

The euro continued to climb against the dollar, hitting a two-month high during the Asian session and was recently up close to 0.2% at $1.136.

Elsewhere in currency markets, the British pound fell around 0.2% to a three-month low against the euro Thursday, as polls opened for one of the most closely fought elections in recent U.K. history. Sterling also edged lower against a weak U.S. dollar.

Although the pound has shown resilience in the lead-up to the vote, strategists on Thursday said the currency would likely face headwinds over the coming days, especially if no single party is able to secure a majority, which could lead to lengthy negotiations over a possible coalition.

"If heightened uncertainty weighs more heavily on the pound in the near-term, it could create an attractive opportunity to buy the pound on dips," said Lee Hardman, a strategist at Bank of Tokyo-Mitsubishi UFJ.

London's FTSE 100 index was 0.7% lower in early trade.

In debt markets, government bonds continued to slump, with the yield on the U.K.'s 10-year gilt rising to 2.007%. On Wednesday, it surpassed the 2% mark for the first time since December.

German 10-year government bonds, or Bunds, were yielding 0.65%, their highest in four months and comfortably higher than where they were before the European Central Bank announced its massive quantitative easing program in January.

Just over two weeks ago, the 10-year Bund yield hit an all-time low of 0.05%, spurring predictions of zero or even negative yields on the benchmark for European credit markets.

Write to Josie Cox at [e-mail]

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