European shares post first monthly loss in six months as oil, bond yields rise

European shares suffered their first monthly fall in six on Wednesday, as a surge in global bond yields reduced the appeal of riskier assets, while investors parsed through cooler-than-expected US inflation data.

The pan-European STOXX 600 .STOXX closed 0.5% lower, reversing gains from earlier in the session. It is down 2.5% for the month and 1% for the third quarter.

An energy-price shock from the Iran war, deteriorating government finances and a glut of issuances prompted major central banks, including the Federal Reserve and the European Central Bank, to raise interest rates or adopt a more hawkish stance this month.

"Everything got off on the wrong foot with Jackson Hole (in late August)... (Fed chief) Kevin Warsh was more hawkish than we expected and put us on a path of a rate hike, and that just set the tone for the entire month," said Chris Beauchamp, chief market analyst at IG Group.

Oil was up nearly 14% for the month and set for the biggest climb since July, as US-Iran talks aimed at ending their war stalled. O/R

Energy shares .SXEP shed 0.9%, ending the month with a 2.7% gain, the most among peers.

The 10-year German bund yield DE10YT=RR, a euro zone benchmark, eased for a second day but hovered around its 2009 high.

Meanwhile, data showed US inflation increased less than expected in August, prompting markets to ease bets on US interest rate hikes next month.

"It's more momentum and bonds as much as anything else. Most European markets were at their best levels of the day before the PCE report, and then drifted towards the flat line," said Steve Sosnick, chief market analyst at Interactive Brokers.

"What we're seeing globally is, it's the AI trade or nothing. The problem for Europe is they have smaller exposure overall to the AI build out than the US does."

Most sectors on the STOXX 600 ended the day lower. Banks .SX7P and industrials .SXNP lost 0.8% and 0.7% respectively. Insurers .SXIP were the biggest losers with a 1.4% fall.

British utilities rose a day after UK Prime Minister Andy Burnham made various policy announcements for the sector. Pennon PNN.L, SSE SSE.L and National Grid NG.L rose between 2% and 2.6%, with the broader utilities sector .SX6P 0.6% higher.

Separately, data showed Britain's economy grew faster than previously thought in the second quarter and German inflation accelerated to its highest level since December 2023.

Among individual movers, Nordnet SAVE.ST shares gained 1.1% as J.P. Morgan resumed coverage on the stock with an "overweight" rating.

Britain's largest fast-food chain Greggs GRG.L gained 8.2% after the company raised its annual profit outlook.

-Reporting by Sudeshna Ghoshal and Purvi Agarwal in Bengaluru; Editing by Janane Venkatraman, Harikrishnan Nair, Elaine Hardcastle/Reuters