European shares retreated on Friday from multi-month highs scaled in the previous session as investors digested a mixed batch of earnings and as government bond yields climbed after the Bank of Japan tweaked its monetary policy.
The pan-European STOXX 600 index slipped 0.3%. The benchmark index closed at its highest levels in nearly 1-1/2 years on Thursday after the European Central Bank hiked interest rates as expected but raised the possibility of a pause in September.
Rattling investor nerves, the BoJ made its yield curve control policy more flexible and loosened its defence of a long-term interest rate cap, in moves seen as a prelude to an eventual shift away from the massive monetary stimulus.
European government bond yields rose, mirroring gains in Japanese yields and putting pressure on stocks.
“Japanese investors will now have a large incentive to repatriate cash that is currently parked in USTs (U.S. Treasuries) and buy JGBs (Japanese government bonds) instead. That obviously goes for euro zone bonds too,” said Stuart Cole, chief macro economist at Equiti.
“This effectively means we could see upward pressure on yields globally and that is not great news for stocks. We also need to take into account that the past couple of days have been quite good for equity markets in general.”
Despite Friday’s weakness, the benchmark STOXX 600 looked set to notch its third straight week of gains, driven by hopes that the Federal Reserve and the ECB are nearly done hiking interest rates.
Spanish consumer prices rose by a more than anticipated 2.3% in the 12 months through July.
Separate sets of data showed the German economy stagnated in the second quarter of 2023, while the French and Spanish economies
grew at a sustained pace on the back of stronger exports and tourism.
In earnings-driven moves, Capgemini tumbled 7.0% after the French IT consulting group’s second-quarter growth slowed more than expected.
French drugmaker Sanofi slipped 2.7% as quarterly sales fell short of estimates.
Shares of Austrian sensor maker AMS Osram advanced 9.2% after the company presented a strategic re-alignment of the group and reported second-quarter results in line with its expectations.
Hermes gained 2.1% as sales at the Birkin bag maker accelerated in the second quarter, while Pan-European stock and derivatives exchange Euronext climbed 6.6% as it announced the launch of a 200-million-euro ($219.88 million) share buyback programme.