MW: Europe stocks slump as OECD cuts growth outlook
By Sara Sjolin, MarketWatch
LONDON (MarketWatch) — European stock markets dropped on Wednesday, after the OECD cut the outlook for global growth and warned that exiting monetary-easing programs puts stability in the bond markets at risk.
The Stoxx Europe 600 index XX:SXXP -1.30% lost 1.5% to 303.68, erasing a 1.3% gain from Tuesday.
Shares of H&M Hennes & Mauritz AB SE:HMB -2.18% gave up 2.6%, after analysts at Goldman Sachs cut the Swedish fashion retailer to sell from neutral.
Banks were also declining, retreating after posting solid gains on Tuesday. Shares of Royal Bank of Scotland Group PLC UK:RBS -1.10% RBS -0.40% dropped 1.5% in London, Commerzbank AG DE:CBK +0.63% shaved off 1.1% in Frankfurt and Credit Agricole SA FR:ACA -0.72% lost 1.3% in Paris.
The broader European stock market was also being hit hard, bruised by the Organisation for Economic Co-operation and Development cutting its outlook on euro-zone growth. The OECD now expects the euro-zone economy to shrink 0.6% this year, down from an earlier estimate of a 0.1% contraction. In 2014, it is expected to rebound 1.1%, down from 1.3% expected earlier.
Additionally, the organization slashed its global growth forecast to 3.1% in 2013 and 4% in 2014, down from 3.4% growth and 4.2% respectively
“Worryingly, the scale of the downward revision also highlights how robust economic growth has failed to materialize despite huge central bank stimulus efforts around the world. Downbeat, lowered forecasts for global growth in 2014 suggest that the world will also remain in a subpar growth phase for the foreseeable future,” said Chris Williamson, chief economist at Markit.
Aggressive easing programs have in recent weeks helped lift global equity markets to multiyear highs, largely offsetting worries about sluggish growth. On Tuesday, however, better-than-expected U.S. consumer-confidence data and upbeat housing pointed to a pickup in the U.S. economy, but also stoked fears the Federal Reserve will soon end its bond purchases.
Last week, Fed Chairman Ben Bernanke said the central bank could start to reduce its stimulus program in coming months if data continue to improve, stoking fears of market turmoil.
In that vein, the OECD warned in its twice-yearly Economic Outlook report that withdrawals by central banks from monetary-easing programs likely will cause spikes in government-bond yields, posing a risk to the outlook of the global economy.
U.S. stock futures pointed to a lower open on Wall Street.
Back in Europe, the U.K.’s FTSE 100 index UK:UKX -1.58% dropped 1.5% to 6,658.26. Oil firms posted some of the biggest losses, tracking a decline for oil prices. BP PLC UK:BP -0.75% BP -0.14% dropped 0.8% and BG Group PLC UK:BG -0.25% fell 0.7%.
Germany’s DAX 30 index DX:DAX -1.33% erased 1.7% to 8,334.80 and France’s CAC 40 index FR:PX1 -1.23% fell 1.4% to 3,993.56.
Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.
