European shares dip on high yields and profit-taking; banks rally

(Reuters) – European stocks ended lower on Thursday, even as bank shares hit 14-month highs on strong quarterly earnings, as a rise in euro zone bond yields saw investors lock in profits at near-record levels.

The pan-European STOXX 600 index fell 0.3% to 438.77, coming further off a record peak of 443.61 hit last week.

Traders cited the pullback to investors taking in profits after “stellar results”. The STOXX 600 had surged to record highs on anticipation of a strong earnings season, as well as optimism over steady COVID-19 vaccination programs.

Bank stocks were the best performers for the day, as Standard Chartered added another notch to a series of strong earnings reports this week, including those from HSBC and Santander.

The sector was also supported by a jump in euro zone bond yields, after U.S. economic growth and German inflation data came in higher than expected, strengthening the case for a pullback in central bank stimulus. Treasury yields also hit a two-week high. [GVD/EUR] [US/]

But the rise in yields put pressure on other European sectors, particularly cyclical stocks that have rallied this year. Travel and leisure stocks, the best-performing European sector this year, fell 0.7%, coming off record highs.

Automobile stocks led losses on Thursday with a 2.6% fall after U.S. carmaker Ford said a global semiconductor shortage may slash second-quarter production by half.

Still, European earnings are seen jumping 71.3% in the first quarter, according to Refinitiv IBES data. Almost a third of the STOXX 600 companies have reported so far, and a higher-than-usual 68% have topped profit estimates.

Consumer goods giant Unilever rose 3.3% as a pick-up in home cooking and a strong economic recovery in China drove better-than-expected quarterly sales.

Finnish telecom network equipment maker Nokia surged 8.4% to the top of the STOXX 600, as growth in sales of network and 5G equipment boosted its earnings.

“The majority of the reported firms sound constructive on the outlook for the remainder of the year,” European equity strategists at Barclays wrote in a note, but added that the high expectations had been priced in.

Among decliners, steel pipe maker Tenaris’ Milan shares fell 6.8% and were among the top losers on the STOXX 600 after the company posted a bigger-than-expected 30% fall in first-quarter core profits.

Danish wind farm developer Orsted fell 6.7% after lower wind speeds and cable problems hit its first-quarter earnings.

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