Breaking News
0

European shares slide on 'powerful cocktail' of China slump, Treasuries and Italy

Stock MarketsOct 08, 2018 05:38AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: The London Stock Exchange Group offices are seen in the City of London, Britain

By Virginia Furness

LONDON (Reuters) - European markets fell heavily on Monday as investor confidence took a knock from last week's spike in Treasury yields and from a Chinese market slump brought on by concerns that an escalating trade war with the United States could dent China's growth.

Chinese stocks returned from a week's holiday to record their biggest one-day drop since February, with the Shanghai-Shenzhen CSI300 down more than 4 percent for only the second time in more than 2-1/2 years. [L4N1WO13F]

This helped set the tone for the European open and stock markets fell with the pan-European index down 0.7 percent and Germany's DAX 0.8 percent lower.

The MSCI world equity index, which tracks shares in 47 countries, fell 0.34 percent.

The fall in global equities boosted demand for the dollar as investors rushed for safety. Against a basket of its rivals the greenback rose 0.3 percent, edging toward a 14-month high hit in mid-August.

Investor fears of higher U.S. interest rates, global protectionism, emerging market weakness and an Italian budget row have all combined to send equities sharply into the red in October, with world stocks down more than 2 percent already.

The dark mood in China sent shivers across Asian markets and will add to investors nervousness - the MSCI benchmark emerging markets index dropped 0.7 percent to its lowest level since May 2017, and is now down 22 percent from January’s peaks.

Growth concerns led the People's Bank of China (PBOC) on Sunday to cut the level of cash that banks must hold as reserves, aimed at lowering financing costs as policymakers worry about the fallout from the tariff row with the United States.

"China just cut reserve requirement ratios and expanded monetary policy, which is a response to the fact that China’s economy is slowing down but the market doesn’t believe there is enough stimulus to cut the slowdown," said Guillermo Felices, a senior strategist at BNP Paribas (PA:BNPP) Asset Management, calling the current concerns markets face a "powerful cocktail".

"They've injected more liquidity into the market to contain the slowdown, which has already translated into weaker equity prices."

The Chinese slide comes after U.S. Treasury yields hit seven-year highs on Friday following strong data that signaled a continued tightening of the labor market and increased inflationary pressures - adding to the reasons for the U.S. Federal Reserve to continue with its hiking cycle.

U.S. trading is likely to be muted on Monday, with markets closed for Columbus Day.

ITALY UNDER PRESSURE

Renewed concerns over Italy's budget also added to the risk-off tone in European equities. The FTSE MIB skidded 2.2 percent to its lowest since 21 April 2017, as government bonds yields hit new highs, putting pressure on bank shares.

The European Commission has told Italy it is concerned about its budget deficit plans for the next three years since they breach what the EU asked the country to do in July, but Rome insisted on Saturday it would "not retreat" from its spending plans.

Italy's 10-year government bond hit fresh four and a half year highs on Monday. As a result the euro fell 0.4 percent to $1.1480, close to its lowest since Aug, 20.

"We are a bit surprised by the strength of the reaction in bond markets, but it appears the market is jumping to the conclusion that the European Commission will take a hardline stance when Italy submits its budget," said Mizuho rates strategist Antoine Bouvet.

Germany's 10-year government bond, the benchmark for the region, remains close to four-month highs at 0.559 percent.

Oil dropped back to $83.27 per barrel after Washington said it may grant waivers to sanctions against Iran's oil exports next month, and as Saudi Arabia was said to be replacing any potential shortfall from Iran.

European shares slide on 'powerful cocktail' of China slump, Treasuries and Italy
 

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email