Sector-wide slide with resources hit hardest; Logitech off 10%
By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) — European stock markets fell sharply on Thursday, with banking, mining and oil stocks hit hard amid widespread disappointment over a bond-swap program announced by the Federal Reserve, which also sounded an economic warning that rattled investors.
Wall Street traded sharply lower in early action, cementing losses for Europe that deepened as the day wore on. The Stoxx Europe 600 index XX:SXXP -4.63% sank 3.8% to 216.61, after closing down 1.7% in the prior session.
The Fed on Wednesday announced a program to “twist” the yield curve by swapping $400 billion of short-term debt for longer-term maturities. The U.S. central bank said it was acting in light of “significant downside risks to the economic outlook, including strains in global financial markets.” Read Fed decides on $400 billion bond swap
Market observers said the Fed delivered what was expected and nothing more — but its economic warning only served to push skittish investors further away from stocks. The Conference Board said Thursday that the U.S. economy should show “continued weak growth” through fall and winter.
“I don’t think there’s anyone willing to risk their neck in this market,” said Steen Jakobsen, chief economist at Saxo Bank.”It’s very rudderless right now.”
He expects a 10% correction for equity markets, saying the U.S. Standard & Poor’s 500 benchmark index SPX -3.24% could test the range between 1,000 and 1,050.
“The market is finally realizing that all this talk of austerity --- means the real discussion we should be having is how to create jobs, and growth is on the back burner,” Jakobsen said.
Jakobsen said in addition to Fed disappointment, markets continue to deal with the crisis in the euro zone “going from bad to worse.” Greece announced plans to suspend more civil servants and cut deeper into pensions on Wednesday, according to media reports, as the country continues a desperate bid to get its next tranche of financial aid.
Losses were felt through nearly every market, while the dollar surged as investors sought a safe haven. The cost of borrowing hit record-wide levels for countries such as Spain and Italy, while even the spread on five-year German credit default swaps jumped.
Among sectors, banks, energy and mining stocks fell in that order, with resource stocks crumbling on Fed’s worries over a stalling economy.
Nor did resource stocks get any help from HSBC’s preliminary China Manufacturing Purchasing Managers’ Index, which dropped to a two-month low in September, pointing to a slowdown in the Chinese economy. China is a big user of natural resources. Fallout from the Fed and the HSBC survey set the stage for a rout in Hong Kong stocks.
Meanwhile, Europe had its own economic gloom to deal with on top of the Fed reaction. The preliminary euro-zone composite purchasing managers’ index dropped to 49.2 in September, pointing to the first decline in private-sector activity across the euro area in more than two years. A reading of under 50 indicates a contraction in activity.
Banks under pressure; resource stocks sink
Adding to pressure on Europe, credit-rating firm Standard & Poor’s late Wednesday cut its long-term ratings on several Italian lenders. As shares of UniCredit SpA IT:UCG -5.19% dropped 4.3%, with Italy’s FTSE MIB index XX:FTSEMIB -4.52% diving 3.8%.
French banks suffered some of the biggest losses among banking stocks, with Societe Generale SA FR:GLE -9.57% sinking nearly 8% and BNP Paribas SA FR:BNP -5.70% trading down 4.5%. The French CAC 40 index FR:PX1 -5.25% shed 5% to 2,791.51.
BNP Paribas dismissed as “pure fantasy” a Financial Times report Thursday that senior executives are pushing French regulators to conduct emergency stress tests to find weaknesses in the nation’s banking system.
The article also said that BNP executives plan to tour the Middle East in a search for funding. Without directly commenting, BNP said in the same statement that it conducts an annual program of global investor road shows to promote investing in the company.
Resource stocks sagged amid plunging commodity prices. French oil major Total SA FR:FP -5.68% TOT -4.98% fell over 5%, while in London, BP PLC BP -3.88% UK:BP -4.96% gave up 4.6%. Royal Dutch Shell PLC RDS.A -2.87% UK:RDSA -3.41% tumbled 4% as crude oil futures sank nearly $5.
London’s FTSE 100 index UK:UKX -4.67% dropped 4.6% to 5,042.81. In selling akin to that seen with the oil majors, heavyweight mining stocks such as Rio Tinto PLC RIO -10.68% UK:RIO -6.76% tanked nearly 10% and BHP Billiton PLC BHP -7.03% UK:BLT -8.31% declined over 8%. Gold futures for December delivery plunged nearly $80.
The German DAX 30 index DX:DAX -4.96% fell 4.3% to 5,202.04, as its heavyweights dropped sharply, led by a 7% tumble for Daimler AG DE:DAI -8.04% , a 5% loss for conglomerate Siemens AG SI -3.04% DE:SIE -4.45% and a 4% slide for chemical group BASF SE DE:BAS -4.76% .
While miners such as Antofagasta PLC UK:ANTO -6.04% , down 13%, marked the biggest decliners on the Stoxx 600, other stocks had an equally rough day. Shares of Logitech International SA CH:LOGN -11.74% slumped 9% after the U.S.-Swiss producer of computer peripherals late Wednesday issued its third profit warning in six months.
