By Barbara Kollmeyer, MarketWatch
Europe’s main stock gauge ended lower Friday, again weighed by worries over rising U.S. bond yields, as it posted a second consecutive weekly decline.
What are markets doing?
A day after logging the worst session in seven weeks, the Stoxx Europe 600 /zigman2/quotes/210599654/delayed XX:SXXP -0.37% declined 0.9% to end at 376.41. For the week, the pan-European gauge lost 1.8%, its weakest performance since a 2.2% drop in the week ending September 7.
Germany’s DAX 30 /zigman2/quotes/210597999/delayed DX:DAX -0.12% dropped 1.1% to close at 12,111.90, while France’s CAC 40 /zigman2/quotes/210597958/delayed FR:PX1 -0.23% fell 1% to 5,359.36. The U.K.’s FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX -0.08% slid 1.4% to 7,318.54.
The euro /zigman2/quotes/210561242/realtime/sampled EURUSD -0.1296% was little changed at $1.1511, while the pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.4877% traded at $1.3097, compared with $1.3020 late Thursday.
What is driving the market?
U.S. employers added just 134,000 new jobs in September, falling short of expectations, but the figure may have been affected by Hurricane Florence. The unemployment rate dropped to a 49-year low of 3.7%, indicating it remains tough for U.S. companies to find employers.
Led by Treasurys, global bond yields have been rising as investors pencil in the possibility of a more aggressive-than-anticipated rate-hike path by the Federal Reserve. Higher yields on bonds can make other investments such as stocks less attractive. The yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -1.14% on the 10-year Treasury note was trading at a seven-year high at 3.229%.
As for Europe, two hot spots have been grabbing the headlines, with Greek banks under pressure on concerns they can’t digest a mountain of bad loans and might need fresh capital.
On Thursday evening, Italy’s government, which has been in the spotlight, announced final budget targets , cutting growth targets and sticking to its plan for a budget deficit target of 2.4% of gross domestic product, or GDP, in 2019.
Elsewhere fears over rising tensions between the U.S. and China were weighing on some tech names, along with a report from Bloomberg Thursday over Chinese spying via U.S. computers.
What are strategists saying?
“As budget details emerge, targets for the deficit in 2020 and 2021 have been revised lower and markets have been somewhat reassured by a more conciliatory tone toward Brussels coming from Rome,” analysts at BlueBay Asset Management wrote in a note to clients. “We continue to see Italexit risk as extremely unlikely and materially overpriced.”
The China spy story plays unfortunately into the hands of U.S. President Donald Trump, and is a headache for big tech names, said Joshua Mahony, Market Analyst at IG.
“Markets care most about the potential for a resolution to U.S.-China negotiations, yet this news adds more to fuel to the fire, providing a likely extension to the timeline of any potential agreement,” he told clients in a note.
Banks were the biggest losers on Friday, led by a 6.2% drop for Danske Bank AS after the Financial Times reported that an internal memo showed that the bank /zigman2/quotes/209678580/delayed DK:DANSKE +1.20% conducted mirror trades to allegedly launder Russian money.
Mining stocks were also a big decliner, with Anglo American PLC /zigman2/quotes/201381512/delayed UK:AAL +1.68% and Rio Tinto PLC /zigman2/quotes/208934945/delayed UK:RIO +1.06% /zigman2/quotes/202627887/composite RIO -0.15% /zigman2/quotes/202627887/composite RIO -0.15% /zigman2/quotes/202627887/composite RIO -0.15% each dropping 4%.