Rising yields, downbeat energy stocks drag European shares lower

By Shristi Achar A and Khushi Singh

(Reuters) -European shares edged lower on Monday, extending their lacklustre start to the year as tepid energy shares dragged the index, while a rise in government bond yields weighed on risk sentiment.

The pan-European STOXX 600 moved 0.3% lower by 0915 GMT, extending the previous week’s decline of 0.5%.

European oil and gas stocks dropped 1.7% to weigh the most on STOXX 600, as crude prices dipped following sharp price cuts by top exporter Saudi Arabia and a rise in OPEC output. [O/R]

Adding to the sector’s declines, Shell lost 2.0% after the oil giant flagged impairment charges of about $2.5 billion to $4.5 billion for the fourth quarter.

Fading expectations of an early rate cut in the U.S. has kept the dollar and government bond yields supported, with the yields on the European 10-year benchmark note and the German 10-year up for a third consecutive session.

“The evidence is that economic growth is responding to (rate hikes). But it doesn’t mean that inflation is going all the way back to where central banks want it to be necessarily this year,” said Andrew Bell, CEO of Witan Investment Trust.

Analysts also flagged that the impending fourth-quarter earnings season in the U.S. and the inflation report, due on Thursday, will help set the tone for equity markets.

Meanwhile, data showed German industrial orders rose less than expected, while exports rose more than estimated in November. Germany’s DAX 40 was nearly flat.

Investors now look forward to Eurozone retail sales data for the month of November, due at 10:00 am GMT, where a Reuters poll of economists forecast a decline of 0.3%.

Basic resources shares dropped 0.8% as prices of both gold and copper took a downturn on a stronger dollar. [GOL/] [MET/L]

In corporate news, shares of Airbus were up 1.4% after the U.S. FAA ordered the temporary grounding of some Boeing 737 MAX 9 jets. U.S.-listed shares of Boeing slid 7.7% in premarket trading.

Pandora added 1.6% as the Danish jewellery maker exceeded quarterly sales expectations.

Gecina SA was down 2.7% after Morgan Stanley downgraded the real estate trust stock to “underweight” from “equal weight”.

Goldman Sachs said it expects Britain’s blue-chip FTSE 100 index to rise to 7,900 over the next 12 months. The index was down 0.3% for the session.

(Reporting by Khushi Singh and Shristi Achar A in Bengaluru; Editing by Sherry Jacob-Phillips and Janane Venkatraman)