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

European shares closed sharply lower on Wednesday ‌after ​three straight sessions of gains, as higher oil prices and a rise in bond yields sapped risk appetite. The pan-European STOXX 600 index ended 1% lower, giving up most of the gains from the last three sessions. Banks took ‌a beating once again, down 3.3%.

Tech stocks also eased from record highs. BE Semiconductor Industries fell 8.5% after UBS downgraded the Dutch chip-equipment maker's stock to "sell", citing risks to the adoption of chip-packaging technique hybrid bonding. "People are betting that the mega spending in AI is not letting up, and that inflationary pressures linked to a higher oil price ‌won't derail the tech-related good news," said Russ Mould, investment director at AJ Bell.

"In Europe, where there is a lower representation of AI-related names, investors ‌are taking a more cautious stance." BOND MARKET SELLOFF

European stocks have come under pressure, as a global bond market rout shows no signs of slowing with investors grappling 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 concerns about France's deteriorating finances ahead of next year's presidential election.

Germany's ⁠10-year government ​bond yield rose to 3.5279% before ending ⁠little changed. Brent crude rose 0.5% as traders weighed potential supply disruptions from a storm threatening US oil-producing regions and Houthi attacks on Saudi Arabia against higher Middle East crude supplies.

"This time, spreads are ⁠responding to fiscal concerns for which the main cause is, arguably, a global sell-off in bonds amid higher energy prices," James Reilly, senior markets economist at Capital Economics, said in ​a note. Reilly said that French stocks could remain laggards if tech stocks continued to drive market growth, and a recovery was unlikely until the fiscal ⁠situation improved materially.

THIRD-QUARTER EARNINGS PROSPECTS Minutes from the Federal Reserve's September meeting and remarks from Fed officials will be parsed for fresh clues on the rate trajectory. Expectations for another US rate hike this month ⁠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 starting 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 individual stocks, Britain's Pennon Group shed 20% 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. Autos reversed earlier gains to fall 0.3%. Media reports, including from Bloomberg, said the European Union was considering limiting imports of Chinese hybrid vehicles into the bloc.

European Trade Commissioner Maros Sefcovic was heading to Beijing on Wednesday for talks designed ‌to reduce the EU's growing ‌trade deficit with China.