European stocks hit 10-week high as rising bond yields lift financial shares Europe Markets

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UBS shares lost ground Monday.

European stocks finished at their highest in more than 10 weeks Monday, with a turnaround in the market aided by gains for financial stocks as bond yields rose, moves that came ahead of this week’s European Central Bank meeting.

How markets moved

The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP +0.68% closed up 0.4% to 383.18, the best close since Feb. 2, according to FactSet data. Telecom, oil and gas and financial stocks led sector gainers, while utility, consumer goods and basic materials shares fell. The index on Friday ended fractionally lower, but ended last week up by 0.7%, a fourth consecutive weekly advance.

In Frankfurt, the DAX 30 index /zigman2/quotes/210597999/delayed DX:DAX +0.82% ended up by 0.3% at 12,572.39, and in Paris, the CAC 40 index /zigman2/quotes/210597958/delayed FR:PX1 +0.91% picked up 0.5% to finish at 5,438.75.

Spain’s IBEX 35 /zigman2/quotes/210597995/delayed XX:IBEX +1.61% tacked on 0.4% to 9,922.00, and the U.K.’s FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX +0.62% closed up 0.4% to 7,398.87.

The euro /zigman2/quotes/210561242/realtime/sampled EURUSD -0.2243% bought $1.2220, down from $1.2289 late Thursday in New York.

The yield on Germany’s 10-year bund /zigman2/quotes/211347112/realtime BX:TMBMKDE-10Y +3.28% rose 4 basis points to 0.63%, according to Tradeweb data.

What drove the market

European stocks swung higher during the session, with shares of bank and insurance companies bolstered by higher interest rates in the form of gains for eurozone bond yields. Those yields moved up as the U.S. 10-year Treasury yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.05% edged toward the 3% level. The Stoxx Europe 600 Insurance Index /zigman2/quotes/210599350/delayed XX:SXIP -0.34% climbed 1% and the Stoxx Europe 600 Banks Index /zigman2/quotes/210599339/delayed XX:SX7P +0.12% bulked up by 0.7%.

“The recent rally in metal prices, and oil prices hitting fresh four-year highs have stoked fears that inflation in the U.S. will pick up sharply, raising interest rate-hike expectations,” said Fiona Cincotta, senior market analyst at City Index, in a note.

Investors continued to sort through corporate earnings reports, and did so Monday as preliminary manufacturing and services PMI reports from the eurozone, Germany and France largely beat expectations. But IHS Markit did say that the eurozone economy remains in a “lower gear” as business-activity expansion has marked signs of weaker demand growth and supply constraints.

The PMI data arrived after European Central Bank President Mario Draghi reportedly said on Friday that the region’s growth cycle may have peaked.

Investors will watch what Draghi and the ECB will say about continuing the bank’s quantitative easing measures when they release the next policy decision on Thursday.

Read: Signs of higher inflation are popping up everywhere

Also check out: Expect a careful, dovish Mario Draghi at next week’s ECB meeting

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