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European shares weighed down by defensives; banks get yield boost

By Danilo Masoni

MILAN (Reuters) – European shares fell on Thursday as defensive stocks came under pressure after strong U.S. data lifted global yields and bolstered expectations for rate hikes in the world’s biggest economy.

The pan-European STOXX 600 (STOXX) benchmark index was down 0.6 percent by 0844 GMT, while Germany’s DAX (GDAXI) declined 0.4 percent and the UK’s FTSE (FTSE) fell 0.8 percent.

Data on Wednesday showed that U.S. services sector activity raced to a 21-year high in September, lifting Treasury yields to their highest since mid 2011. That in turn also boosted euro zone government bond yields on Thursday.

“The Treasury yield is commonly seen as the risk-free rate for investing, so an increase tends to be negative for other asset classes including shares,” said Russ Mould, investment director at AJ Bell.

Defensive companies including consumer and healthcare stocks were the main drag on the STOXX 600. Rising yields make their steady dividend streams less appealing.

Brighter economic prospects also weighed on the sector, which had been in demand this summer on worries that trade wars could slow global growth.

Shares in big multinationals British American Tobacco (L:BATS), Nestle (S:NESN) and Novartis (S:NOVN) were down between 0.5 and 3.8 percent.

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