Infineon, Imperial Tobacco among handful of stronger stocks
By Simon Kennedy, MarketWatch
LONDON (MarketWatch) — European shares dropped on Wednesday as worries about sovereign debt, disappointment over the Federal Reserve’s inaction and a warning over falling investment-banking income at Deutsche Bank all contributed to the sell-off.
The Stoxx Europe 600 index (ST:SXXP 261.31, -3.70, -1.40%) declined 1.2% to 261.91.
The U.K.’s FTSE 100 index (UK:UKX 5,539, -36.98, -0.66%) slipped 0.5% to 5,549.92 and the French CAC 40 index (FR:PX1 3,736, -48.25, -1.28%) fell 1% to 3,747.97.
The German DAX 30 index (DX:DAX 6,206, -69.98, -1.12%) declined 0.9% to 6,222.3.
The fall came after a choppy Wall Street session, during which the Fed said it’s “prepared to provide additional accommodation if needed to support the economic recovery,” but refrained from taking any measures just yet.
“I think the market had expected [the Fed] to state that they will initiate another QE [quantitative-easing] program,” said Christian Tegllund Blaabjerg, chief equity strategist at Saxo Bank.
Since the Fed didn’t do that, the markets are now giving up recent gains on disappointment, he said.
“I think we will have a short-term correction now and then for the next 14 days or so, we may have equities going higher on expectations of strong earnings [for the third quarter],” Blaabjerg said.
Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, said he thinks the Fed’s comments were in line with what markets expected, but that strong gains in the previous couple of weeks left markets overbought and ready for a fall.
Gijsels said the third-quarter earnings season may provide a lift for stocks, but that “until then we are more or less stuck with negative news flow,” as the focus will be on economic data.
Worries about sovereign debt added to the downturn Wednesday, with the cost of insuring Irish debt rebounding to a record high and spreads also widening for Portugal and Spain.
Banco Santander (ES:SAN 9.38, -0.36, -3.66%) (STD 12.56, -0.34, -2.64%) , a big holder of Spanish debt, fell 3.5% and Bank of Ireland (IE:BIR 0.63, -0.03, -3.85%) (IRE 3.48, +0.06, +1.75%) dropped 4.2% in Dublin.
Gold futures, meanwhile, soared to new heights, as investors sought a safe haven. Gold for December delivery rose to an intraday high of $1,296.50 an ounce on Globex.
David Buik, a strategist a BGC Partners, said a very large program trade had also helped precipitate the sell-off in Europe, where volumes have been thin.
Also in the banking sector, Italy’s UniCredit (IT:UCG 1.84, -0.06, -3.05%) dropped 3.2% after it said Chief Executive Alessandro Profumo has resigned. The stock had already lost more than 2% in the previous session amid reports that Profumo would quit following a boardroom battle over the bank’s ties with Libya.
