European Stocks fall after Yellen warns of Valuations
European stocks ended a volatile session sharply lower Wednesday after U.S. Federal Reserve Chairwoman Janet Yellen sounded alarm bells over the current high prices of stocks.
The Stoxx Europe 600 SXXP, -0.60% closed 0.6% lower at 388.68, ending at the lowest level since early March.
Stocks had been darting in and out of positive territory throughout the session, but the pan-European benchmark started to descend in the afternoon after Fed boss Yellen said stock valuations are “quite high”.
Some country indexes held to gains, however, following data showing modest overall economic growth in the eurozone in April.
Germany’s DAX 30 DAX, +0.20% DAX, +0.20% closed 0.2% higher at 11,350.15, while France’s CAC 40 PX1, +0.15% ended up 0.2% at 4,981.59. The FTSE 100 UKX, +0.09% rose 0.1%, at 6,933.74.
In Athens, the Athex Composite GD, +2.86% picked up 2.9% to 816.94. On Wednesday, Greece said it made a scheduled payment of 200 million euros ($224.9 million) to the International Monetary Fund. But fears persist that the country will run out of cash unless it reaches a deal with creditors on its bailout.
Pullback: The recent bout of weakness in European equities, including Tuesday’s 1.5% drop, comes as bond yields across Europe have spiked higher, and as the euro has been regaining ground it lost this year against the U.S. dollar. The yield on the widely watched 10-year German bund TMBMKDE-10Y, +12.83% was up 7 basis points at 0.59% on Wednesday. The yield just two weeks ago was at an all-time low of 0.05%.
Also Wednesday, the euro EURUSD, +1.37% broke through $1.13, up 1.5%, to $1.1350, extending gains after ADP’s report of lower-than-expected U.S. growth in private-sector hiring in April.
If Friday’s U.S. government jobs report for April “prints any reading below 200,000, definitely we’re going to $1.1390, $1.400,” on the euro, said Nour Al-Hammoury, chief market strategist at ADS Securities. The euro is still down this year against the greenback, partially driven by the market pricing in an interest-rate hike by the U.S. Federal Reserve.
But economic data “doesn’t suggest by any chance there will be a rate hike in June. So nobody should be surprised if the euro …recovers if there’s no rate hike,” said Al-Hammoury.
The sharp moves on the European equity market “could be about flows and a shake out of crowded positions,” or the market may be “questioning European policy commitment, in an environment where inflation expectations are starting to inch higher — perhaps as oil prices climb — and where European growth continues to improve,” Goldman Sachs analysts in a note Wednesday.
The European Central Bank in March launched at €1.1 trillion bond-buying program aimed at boosting inflation levels and encouraging economic growth.
Goldman said they believe the “ECB’s commitment to continue its purchases for the medium term is solid, and the re-rating of German bonds over the last week or so, is more about unwinding a rally gone too far than about any lasting questions about ECB resolve.”
Source: MarketWatch
