European stock markets opened the week with slight declines as the initial optimism surrounding last Friday’s strong U.S. jobs report faded. The STOXX 600 index dropped by 0.2%, with real estate and utilities sectors experiencing losses amid rising bond yields.
- Rate-Sensitive Sectors Hit: Real estate stocks fell by 1.1% and utilities by 0.5% as bond yields rose. The German 10-year bond yield surged to a one-month high of 2.26%, driven by robust U.S. labour market data, which led investors to scale back expectations of a large rate cut from the Federal Reserve.
- Banking Sector Gains: Despite the overall decline, banking stocks managed a 0.3% gain, benefiting from higher yields.
Impact of U.S. Jobs Data:
The stronger-than-expected U.S. jobs report has caused traders to shift their outlook on future interest rate cuts. While a 25 basis-point cut by the Federal Reserve is still likely in November, the likelihood of a larger 50 bps cut has diminished significantly.
At the same time, expectations for a European Central Bank (ECB) rate cut later this month remain high. French Central Bank Chief Francois Villeroy de Galhau suggested that the ECB will likely cut rates on October 17 as inflationary pressures ease and economic growth remains weak.
European Luxury Stocks Rally:
Luxury stocks were among the best performers, with companies like Kering, LVMH, and Hermes rising between 0.9% and 2.4%. These gains reflect continued optimism over China’s economic stimulus measures, which are seen as a boon for European luxury brands that derive a significant portion of their revenue from China.
- Richemont saw a 0.9% rise after announcing the sale of its Yoox Net-A-Porter online fashion business to Mytheresa, a German luxury fashion platform.
As bond yields climb and rate-sensitive sectors face pressure, banking and luxury stocks have emerged as bright spots. Investors remain cautious, particularly with key inflation data and central bank meetings on the horizon.
