IBEX 35 sinks 1.3%; bond yields climb above pre-LTRO levels
By Sara Sjolin, MarketWatch
LONDON (MarketWatch)—European stock markets headed lower for a third straight day on Thursday, as losses for banks and an unexpected drop in U.K. manufacturing weighed on sentiment, while Spanish and Italian bond yields continued to rise.
The Stoxx Europe 600 index XX:SXXP -0.48% fell 0.5% to 257.37, after trading as high as 259.99 earlier in the session.
The index lost 2.1% Wednesday, after a lackluster Spanish government-debt auction reignited fears over the euro zone’s sovereign-debt crisis and caused a spike in Italian and Spanish government bond yields.
“The bond auction yesterday failed to generate lower yields and obviously markets are suspicious. The spread to the German bund is now over 400 basis points, which is the highest since December. This means that investors are shunning out Spanish bonds,” said Marc Pussard, head of trading at Tradenext.
Yields were also higher Thursday and yields on 10-year Italian government bonds IT:10YR_ITA +2.38% surged 19 basis points to 5.49%. The FTSE MIB index IT:10YR_ITA +2.38% slipped 1.9% to 14,954.20. Banco Popolare SC IT:BP -5.12% was off 5.6%, while Banca Monte dei Paschi di Siena SpA IT:BMPS -6.11% fell 5.4%.
In Spain, yields on 10-year government bonds ES:10YR_ESP +0.71% added 10 basis points to 5.76%, the highest level since the European Central Bank’s first, three-year long-term refinancing operation, or LTRO, in December. The IBEX 35 index XX:IBEX -1.42% lost 1.3% to 7,560.20, as CaixaBank SA ES:CABK -1.68% shed 1.5% and BBVA SA ES:BBVA -1.48% fell 1.3%.
“There are no positive signs for Spain. The indexes have only taken one direction since the middle of March and the drop in the IBEX reflects growing market pessimism. Unemployment is rising and there are structural supply-side issues that need be addressed,” Tradenext’s Pussard said.
“I think that there will be help to come from the EU. The bond market is pricing in a risk of a Spanish default, but Spain is too big to fail.”
Pussard also added that he would be short in European equities at the moment, but long in U.S. stocks.
In the U.S., initial jobless claims fell by 6,000 to 357,000 last week, exceeding analyst expectations. U.S. jobless claims
In Europe, banks were on the decline across the Continent. In the U.K., banks were sent lower after data from the U.K. Office for National Statistics said manufacturing production fell by 1% in February, slipping below analyst expectations of a 0.1% increase.
Meanwhile, the Bank of England left its key lending rate unchanged at 0.5%, as expected, and made no adjustments to its bond-buying program. Bank of England stands pat on interest rates
Lloyds Banking Group PLC UK:LLOY -1.96% LYG -2.43% slipped 1.4%, Royal Bank of Scotland Group PLC UK:RBS -1.80% RBS -2.36% gave up 1.5% and heavyweight HSBC Holdings PLC UK:HSBA -1.19% HBC -1.00% traded 1.2% lower. The FTSE 100 index UK:UKX -0.37% lost 0.3% to 5,685.13. FTSE 100 declines
Bucking the negative trend in London, investment firm Ashmore Group PLC UK:ASHM +3.25% rose to the top of the index and added 3.6% after UBS raised the stock to buy from neutral and said it sees significant opportunities for growth.
Outside the main index, National Express Group PLC UK:NEX +3.98% added 3.7% after Morgan Stanley upgraded the stock to overweight from equal weight.
Veolia Environnement SA FR:VIE -2.79% further weighed on the French index, down 2.7%, after Deutsche Bank cut the stock to sell from hold.
The German DAX 30 index DX:DAX -0.91% slipped 0.8% to 6,728.87, as major banks posted the biggest losses. Commerzbank AG DE:CBK -2.59% gave up 2.6% and Deutsche Bank AG DE:DBK -2.95% fell 1.3%.
Industrial production for February showed a disappointing 1.3% drop, below analyst expectations of a 0.6% decline.
Also adding pressure on the index, drug maker Merck KGaA DE:MRK -0.78% slipped 1.8% as Exane BNP Paribas cut the stock to neutral from outperform.
