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European shares fall on Paris incident, North Korea worries

Stock MarketsAug 09, 2017 12:23PM ET
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2/2 © Reuters. Traders work in front of the German share price index, DAX board, at the stock exchange in Frankfurt 2/2

By Helen Reid and Kit Rees

LONDON (Reuters) - European shares fell back on Wednesday as geopolitical tensions sent all major benchmarks into negative territory, accompanied by a slight uptick in volatility in what is typically a quiet period of summer trading for the market.

Risky assets were hit globally after North Korea said it was considering plans to attack Guam, which has a large U.S. military base.

On a day which also marked 10 years since the start of the global financial crisis, the pan-European STOXX 600 (STOXX) ended the session 0.7 percent lower, while Euro zone stocks (STOXXE) and blue-chips (STOXX50E) dropped more than 1 percent.

France's CAC 40 (FCHI) fell 1.4 percent after a car hit a group of soldiers in a Parisian suburb in what was said to be a deliberate act, while Germany's DAX (GDAXI) was also down 1.1 percent as bond yields fell.

The VSTOXX (V2TX), Europe's main gauge of equity market investor anxiety, stirred to reach its highest level in two weeks, though still remained at subdued levels, while its U.S. counterpart - the Vix (VIX) - touched a one-month high.

“In the wake of the global financial crisis, many major economies undertook largely coordinated efforts to expand balanced sheets and provide almost infinite liquidity to the system," Steve Kelso, CEO of Ashburton Investments, said.

"The by-product of quantitative easing, combined with ultra-low interest rate policies, has been the dampening down of volatility," Kelso said, adding that an increase in volatility spikes was likely in the future.

Gold miners Randgold Resources (L:RRS) and Fresnillo (L:FRES) were among the only gainers on the FTSE (FTSE), up 2.8 to 4.9 percent as investors rushed to the safety of gold.

Banks (SX7P) meanwhile suffered heavy losses, down 1.4 percent.

Results also drove some sharp moves lower.

G4S (L:GFS) led fallers, down 7.5 percent despite the security group reporting first-half profit up 7.6 percent and saying its turnaround was on track. Stifel analysts pointed to operating cashflow being weaker year-on-year.

Chemicals group Brenntag (DE:BNRGn) also dropped 6.7 percent after second quarter results undershot expectations.

Overall, results season has been strong, analysts and investors said. Earnings growth for the MSCI Euro zone companies reporting this quarter is tracking at 15.7 percent, with 76 percent of results in so far.

"I still think there's more good news than bad news [in results] because you're still seeing underlying economies growing at a decent clip," said Andrew King, head of European equities at BNP Paribas (PA:BNPP) Asset Management.

"On a longer term view you're now starting to see a break with the history of constant earnings downgrades," he added.

The healthcare sector declined just 0.3 percent thanks to strong gains from the world's top maker of diabetes drugs, Novo Nordisk (CO:NOVOb), up 7.9 percent after beating second-quarter profit forecasts.

Scout24 (DE:G24n) also jumped 4.7 percent to a seven-month high after the German online classifieds company said it had won back customers in the second quarter. Its shares had fallen sharply after a broker downgrade last week.

European shares fall on Paris incident, North Korea worries


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