Europe stocks retreat after three-day rally as rising yields, oil prices dent sentiment

‌European ​shares edged lower on Wednesday after three straight sessions of gains, as higher oil prices and an ascent in bond yields weighed on sentiment. The pan-European STOXX 600 index was down 0.3% ‌to 635.02 points by 0500 GMT, with banks leading sectoral declines and tech stocks easing from record highs.

BE Semiconductor Industries fell 7.2% after UBS downgraded the Dutch chip-equipment maker's stock to "sell", citing risks to the adoption of chip-packaging technique hybrid bonding. Autos, however, bucked the broader market weakness, rising 0.9% ‌after a report said that the European Union was considering limiting imports of Chinese hybrid vehicles into the bloc.

European stocks have ‌come under pressure in the recent weeks, as a rout in the global bond market shows no signs of slowing as investors grapple with elevated energy prices, persistent inflation pressures and uncertainty over the interest-rate outlook. Bond yields in US and Europe edged higher on Wednesday and French spreads widened on lingering concerns about France's deteriorating fiscal ⁠situation ahead ​of next year's presidential election.

Germany's 10-year ⁠government bond yield was 1.6 basis points higher at 3.4969%. Oil prices rose nearly 1%, with Brent and WTI gaining as traders weighed potential supply disruptions from a storm ⁠threatening U.S. oil-producing regions and Houthi attacks on Saudi Arabia against higher Middle East crude supplies..

"There are continuing concerns about the situation in the Middle ​East. The main thing is there's no light at the end of the tunnel," said Angeline Ong, senior technical analyst ⁠at IG. "The other ongoing concern is how expensive borrowing costs are going ahead because of the situation with the bond yields."

Attention now turns to the minutes from ⁠the ​Federal Reserve's September meeting and remarks from Fed officials for fresh clues on the interest-rate outlook. Expectations for another US rate hike this month have faded after weaker-than-expected jobs data, though markets still anticipate further tightening later this year and into next year. Markets are ⁠also eyeing the third-quarter earnings season set to kick in later this month .

Third-quarter earnings for STOXX 600 companies are expected to rise 19.4% ⁠from a year earlier, LSEG ⁠estimates show. Excluding the energy sector, earnings are forecast to grow 9.9%. Among other stocks, UK's Pennon Group shed 18.6% after the water utility firm launched a fully underwritten £550 million ($728.5 million) rights issue and lowered ‌its dividend in a ‌bid to fix operational problems.