European Stocks Snap Two-Day Advance as Income Shares Decline

(Bloomberg) -- European stocks fell, following their first monthly gain in three, dragged lower by equities that offer the highest dividend payouts.

Consumer staple companies including Nestle SA and Unilever were among the biggest contributors to declines in the Stoxx Europe 600 Index as higher bond yields made equity income less attractive. A gauge tracking energy shares capped its biggest back-to-back gains since June following yesterday's OPEC deal, while miners and banks also advanced.

The Stoxx Europe 600 Index fell 0.3 percent at the close, after sliding as much as 0.7 percent. While the benchmark rose yesterday on OPEC's agreement to cut production, it's still on track for a weekly decline. Sunday's Italian vote on constitutional reform is among a number of political and economic events traders are preparing for in December. Also due are data on American payrolls tomorrow and central-bank meetings in Europe and the U.S. later this month.

“There is a great deal of trepidation among investors ahead of the vote,” said Ken Odeluga, a market analyst at brokerage firm City Index in London. “Even though we got a bounce yesterday after the OPEC agreement, there is still a huge amount of interest on the bearish side and shorts in place. It's the focus for Europe, and we are going to see more selling out of equities if we get a negative outcome. There is certainly room for more volatility.”

Traders assessing what a ‘no' vote on Sunday means for Italy's political stability and its banking crisis aren't taking any chances. Following surprise victories for the Brexit campaign and for Donald Trump in the U.S. election, they are paying the most in more than two years to hedge against swings in the FTSE MIB Index relative to the Euro Stoxx 50 Index. The Italian benchmark rose 1 percent today, following a monthly decline.

The Stoxx 600 climbed 0.9 percent in November on speculation Trump will increase fiscal spending, spurring economic growth. The respite hasn't been enough to stave off the first annual decline for the benchmark since the peak of the sovereign-debt crisis in 2011. It's down 6.8 percent this year.

Among stocks active on corporate news:

• Banco Popular Espanol SA jumped 14 percent after a report it's exploring a potential merger with another bank, and its board called a meeting to discuss replacing Chairman Angel Ron.
• Daily Mail and General Trust Plc rose 3 percent after it reported 2016 revenue that beat estimates.

To contact the reporters on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net, Aleksandra Gjorgievska in London at agjorgievska@bloomberg.net. To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Namitha Jagadeesh

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