European shares fell to a three-month low on Tuesday as rising oil prices and bond yields curbed investor risk appetite ahead of the Federal Reserve's rate decision. Banks were among the biggest drags after Bank of America's CEO warned on trading revenue, while attacks on energy infrastructure pushed oil higher and revived inflation worries.
European shares slid to their weakest level in three months on Tuesday, as rising oil prices and bond yields dampened investors' risk appetite ahead of the U.S. Federal Reserve's rate decision. The pan-European STOXX 600 fell 0.3% to 634.18 points, its lowest closing level since June 12.
Banks Drag on Earnings Worries
Banks and financial services stocks were among the biggest drags, falling 0.9% and 1.9% respectively. UBS dropped 3.4%, among the top decliners on the STOXX 600.
The sector came under pressure a day after Bank of America CEO Brian Moynihan warned that the investment banking fees could drop by at least 10% in the third quarter, with sales and trading revenue expected to be nearly flat. According to Reuters: "The warning triggered worries that the bank could not carry on with strong earnings", said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
L'Oreal Overtakes LVMH
Cosmetics group L'Oreal overtook Louis Vuitton owner LVMH to become France's most valuable listed company, as luxury groups remain under pressure from slowing sales and weak earnings. It is the first time since 2017 that a non-luxury company has held the top spot on the Paris market at the close.
LVMH shares fell 2.6%. The broader European luxury gauge slid 1.5%.
Yields and Oil Add to the Pressure
Higher borrowing costs added to the cautious mood. The U.S. 10-year Treasury yield breached 5% on Monday, its highest level in nearly two decades, while euro zone yields climbed to 17-year highs.
Most STOXX 600 sectors traded lower, though energy stocks rose 1.3% on the day. Oil prices gained more than 2% as attacks on energy infrastructure in the Gulf and the Russia-Ukraine war zone heightened supply concerns. That reinforced inflation fears and pushed investors to price in further rate hikes from major central banks.
The European Central Bank raised rates for the second time this year last week. Investors are now focused on the Fed's decision Wednesday, with traders pricing in more than a 90% chance of a rate hike, according to LSEG data.
On the data front, British job vacancies fell to a four-year low ahead of the Bank of England's policy decision Thursday, when it is expected to leave rates unchanged. In Germany, investor morale stabilised in September, while views on current economic conditions improved markedly.
Among other movers, Puig shed 2.2%. The Spanish beauty group said Monday it would take full control of ISDIN in a €1.20 billion ($1.41 billion) deal.
Source: Investing.com
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