By Sara Sjolin, MarketWatch
LONDON (MarketWatch) — European stocks slumped on Wednesday, as investors worried that the U.S. Federal Reserve may start tapering its $85-billion-a-month bond-buying program in coming months.
“Today acts to confirm earlier fears — that is to say the sentiment in the market has changed,” said David White, financial trader at Spreadex, in a note.
“The selloff being witnessed across the globe over recent sessions supports the central argument that the period of stable returns, devoid of uncertainty over the Fed’s outlook, is over,” he wrote. “The market has likely entered a new phase as a result.”
The Stoxx Europe 600 index XX:SXXP -1.49% dropped 1.5% to 295.12, marking the lowest closing level since late April.
The index had over the past few weeks been swinging between gains and losses, as worries that the Fed could soon scale back its easing program kept investors on the sidelines. The pan-European benchmark closed May higher for a 12th consecutive month, with analysts largely attributing the gains to the aggressive stimulus measures from central banks around the globe.
“I’m a big believer that markets are only at these levels because of [quantitative easing] and the Fed expanding its balance sheet to $3.3 trillion. That’s an enormous influx into the market and supportive of stocks and risk assets, and investors will be concerned without that. It’s difficult to gauge how much the stock market will react to [an end to QE],” said Richard Perry, chief market strategist at Central Markets in London.
Shares of Tesco PLC UK:TSCO -5.17% TSCDY -4.70% dropped 5.2%, after the supermarket retailer said comparable sales for the fiscal first quarter dropped in the U.K.
Another supermarket chain, Carrefour SA FR:CA -4.09% , slumped 4.1% in Paris after HSBC cut the French firm to underweight from neutral.
Shares of Elekta AB SE:EKTAB +6.79% jumped 6.8%, after the medical-tech firm said it expects sales to grow more than 10% in the 2014 fiscal year. It also reported a 16% rise in sales for the 2013 fiscal year.
Japan, U.S. data in the spotlight
Investors in Europe also looked east, where Japan’s prime minister delivered his long-awaited speech on how to boost the country’s economy, but failed to meet expectations. The growth strategy revealed plans to attract foreign funds and boost investment and wages, but dodged some of the tough decisions needed to fix the economy, analysts said.
The Nikkei Stock Average JP:NIK -3.83% ended 3.8% lower.
In the afternoon attention turned to the U.S., where the ADP jobs report showed the economy created 135,000 private-sector jobs in May, falling short of expectations. Markets tend to look to the ADP for guidance on the official U.S. labor data, due on Friday.
Also on Wednesday, data showed U.S. factory orders rose 1% in April, lifted by higher demand for autos and airplanes.
Analysts are closely monitoring macroeconomic reports from the U.S., after Fed Chairman Ben Bernanke said last month that the central bank could begin to scale back its bond purchases in coming months, if data continue to improve. In that light, a positive reading on the labor market could actually trigger a selloff in the stock market, as it may lead to a reduction in the Fed’s liquidity injections.
