European shares pared back morning losses at midday as oil and bank stocks found favour with investors after earlier falls when US Federal Reserve Chair Jerome Powell failed to calm investors over rising bond yields.
The pan-European STOXX 600 was down 0.11, after falling almost 1% in early trading. Regional bourses were mixed, with Britain’s FTSE 100 reversing similar losses to be 0.43% higher.
“The value composition of UK markets does help alleviate some of that selling pressure, with pro-cyclical sectors such as banks and energy on the rise today,” said IG analyst Joshua Mahony.
“Rising yields provide an alternative for equities, with portfolio managers provided an alternate asset to allocate funds into as a means of hedging volatility. However, rising yields also heighten the cost of borrowing for businesses, tightening conditions for those same firms hoping to make up lost ground when the reopening starts.”
“All-in-all, markets are going to have to deal with the fact that yields are going to rise over the course of the year, with stocks put under pressure as a result. Rising yields typically lessen the case for growth stocks, with traders instead shifting towards value names that have been hard-hit over the course of the past year.”
US and Asian markets fell overnight after Powell said that while the rise in yields was “notable”, he did not consider it “disorderly” or would push long-term rates high enough for the Fed to intervene.
“The markets wanted hints as to what the central bank would do if the situation worsens, and when that didn’t materialise, equities took a hit,” said Spreadex analyst Connor Campbell.
Oil prices climbed to their highest level in nearly 14 months on Friday after the Organisation of Petroleum Exporting Countries (OPEC) and its allies agreed to maintain their supply cuts for April. Shares in BP and Royal Dutch Shell were higher on the news.
Brent crude rose to as much as $68 a barrel, a level not seen since 8 January, while US crude hit $64.80 a barrel.
Investors were also eyeing US nonfarm jobs numbers later, with Campbell noting that “investors are likely going to be happier with a weaker reading than a strong one; with stimulus incoming, the suggestion of a healthy rebound in the jobs market is only going to stoke those inflation fears”.
“The bad news is that analysts are forecasting the headline nonfarm number to climb from 49,000 to 185,000 month-on-month. The good news is the reading has underperformed estimates in four of the last five months.”
In equity news, shares in London Stock Exchange Group fell 4.47% despite posting steady full-year results for 2020 and announcing a 7% increase in the dividend.
ArGEN-x shares fell 6.6% after the biotech firm missed fourth quarter earnings and revenue estimates.
Banks were the top performers, with Standard Chartered, HSBC, NatWest and Barclays all higher.
