Key Points
- Rising U.S. Treasury yields and deficit worries weigh on global investor sentiment.
- Eurozone business activity weakened, with PMI slipping below 50 into contraction.
- All STOXX 600 sectors declined, led by consumer goods and automotive shares.
- Johnson Matthey stock soared 30% after selling a unit to Honeywell for £1.8 billion.
European markets declined sharply on Thursday, with mounting fears over U.S. fiscal health and disappointing eurozone economic data dragging down investor sentiment. The pan-European STOXX 600 index dropped 0.6%, its steepest daily fall since early April, and extended losses from the two-month high it had reached earlier this week.
Investors remain cautious amid continued uncertainty surrounding global trade agreements and concerns over U.S. public debt, exacerbated by President Donald Trump’s tax-cut legislation. The U.S. House of Representatives recently passed a bill to expand fiscal spending, prompting concerns about surging deficits and triggering a sharp rise in Treasury yields.
“The size of the U.S. deficit has become a structural issue,” said Iain Barnes, Chief Investment Officer at Netwealth. “This adds uncertainty to the growth outlook and suggests a deteriorating fiscal path.”
The 10-year U.S. Treasury yield climbed to a three-month high, sparking a corresponding rise in long-term German and eurozone bond yields. This, in turn, added downward pressure on equities across Europe.
Adding to the negative sentiment, the HCOB preliminary composite Purchasing Managers’ Index (PMI) for the eurozone fell to 49.5 in May from 50.4 in April, signaling a contraction in business activity. Particularly alarming was the decline in the services sector, which ongoing U.S. tariffs have heavily impacted.
All sectors of the STOXX 600 closed in the red. Personal and household goods, automobiles, and parts led to the decline. However, chemical stocks remained flat, buoyed by a 30% surge in Johnson Matthey shares after the company announced the sale of a business unit to Honeywell for £1.8 billion ($2.4 billion). This marked the stock’s largest single-day gain ever and made it the top performer on the index.
On the downside, Embracer Group tumbled 17% after projecting muted revenue and earnings growth for fiscal 2025/26, coupled with delays to upcoming major game releases. Freenet AG also plunged 16.7% following a disappointing first-quarter earnings report.
