FRANKFURT: European shares fell on Thursday as banks slid to a more than three-month low, while a fresh bond selloff and elevated oil prices stoked fears that higher inflation could hurt economic growth.
The pan-European STOXX 600 index closed 0.8 percent lower, at a nearly four-month low.
European banks dropped 2 percent, with Germany’s Deutsche Bank, Spain’s Banco Santander, France’s Societe Generale and Italy’s UniCredit falling for a second day as euro zone bond yields climbed towards their recent peaks.
“What you see in the European banks is, this growing euro debt crisis is weighing on growth expectations at a time when energy prices are pushing inflation expectations higher and the ECB is not going to be able to step in a way to give relief to the market,” said Ipek Ozkardeskaya, senior analyst at Swissquote.
France’s benchmark CAC 40 fell 0.5 percent to a more-than-6-month low, with the country at the centre of investor concerns as it struggles to rein in a budget deficit exceeding 5 percent of GDP.
Euro zone bond yields rose sharply on Thursday as rising energy prices added to inflation concerns, while investors continued to dump debt issued by heavily indebted countries such as France and Italy, pushing their borrowing premiums higher.
“When oil prices are above USD100, it is very hard for any developed bond market to perform well, especially those that are highly indebted,” said Kathleen Brooks, research director at XTB.
“France is still on everyone’s radar, and it seems likely that bond yields will continue to rise and remain elevated as the country fails to grapple with its fiscal issues, and as the ECB seems unwilling to step in.”
A broad global bond selloff, fuelled by expectations of further central bank rate hikes and mounting concerns over government debt burdens, has driven yields across many euro area countries to multi-decade highs.