European Stocks Fall On Strong Dollar, Weak Commodities

European stocks ended Friday trading in the red, as global bond market volatility and a surging U.S. dollar held back equity gains in the post-election rally.

Commodity stocks were the first to fall victim to the rising dollar, which pushed materials and energy prices lower, while media and advertising stocks fell on concerns over fourth-quarter marketing spending among European companies.

Britain's FTSE 100 slipped into negative territory as the Friday bell approached, giving back around 25 points but still on track to book a weekly advance of 0.5%. It has gained 8.5% for the year-to-date.

The index has a heavy weighting toward commodities and energy, while a slug of the financials were also weak, all of which were laggards during the session.

The domestic facing FTSE 250 bucked the trend however, rising by around 0.25%, boosted by gains across a range of sectors, and pushing it to a 1.3% return for the year-to-date.

Germany's DAX was down around 0.2% on Friday after being weighed down by utilities and autos, pushing the index nearly 1% into the red for the year-to-date.

France's CAC 40 lost around 0.5% for the session, as advertisers and energy related stocks fell, pushing the index closer toward a 3% loss for the year to date.

The region's blue chip index, the Euro Stoxx 50, fell 0.62% on the session, wiping out a modest weekly advance and taking the five-day decline to around 0.36%. The benchmark has recorded a loss of 7.5% for the 2016 year-to-date.

Key European currencies saw yet more weakness against the dollar, with the pound trading down by more than 100 points at 1.2305 by the time stocks closed, and the euro down by 50 points to 1.0580.

Fixed income markets saw the transatlantic gap grow wider, as US yields continued to rise faster than those in Europe.

The extra yield, or spread, that investors earn by holding 10-year U.S Treasury bonds, instead of German bunds, widened to 195 basis points, the most since 1989. This reflects the increasingly divergent path in monetary policy between the Federal Reserve and the European Central Bank.

While Fed Chair Janet Yellen's hawkish comments to the Congressional Joint Economic Committee Thursday sent the dollar to its highest levels in nearly 14 years, taking Treasury yields with it, ECB President Mario Draghi's dovish speech to the European Banking Congress did the opposite.

Draghi's warning that the Eurozone economy was still in need of central bank support was taken as a clear signal that the ECB will extend its E1.5 trillion quantitative easing program in March, resulting in higher bund prices and lower yields and thus widening the gap with U.S. Treasuries.

Outside of laggard sectors, other big fallers were fairly well dispersed.

On the FTSE 100 Rolls Royce Holdings (RYCEY) was a notable downside mover Friday, with shares declining nearly 6%, after one of its biggest customers, Emirates Airlines, reported technical problems with engines in that are soon to be fitted into its A380 fleet.

Engineering-component supplier, Electrocomponents (EENEY) , posted a 76% increase in first-half profits shortly before the market opened and upped its guidance for full-year cost savings. The stock was up by more than 20% for the session, making it the best-performer on the FTSE 250 index.

In Germany, Volkswagen AG (VLKAY) shares were active after the automaker confirmed plans to eliminate 30,000 jobs as part of a multi-year cost-savings program that will see the Wolfsburg-based group transition to electric car production in 2025.

VW shares rose as much as 1.9% on the session in early Frankfurt trading, before paring gains and closing down about 0.5% by the end of the trading day.

In France, Publicis (PUBGY) shares were among the top fallers, dropping by around 1.5%, as investors reacted to comments made by its CEO at a conference, suggesting that group revenue remained under pressure from a moribund market in the fourth-quarter.

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