MW: Europe stocks drop amid global growth concerns
Stoxx 600 posting biggest drop since November
By Sara Sjolin, MarketWatch
LONDON (MarketWatch) — European stock markets dropped Tuesday, as banks and resource shares moved lower on concerns about global growth and as investors nervously looked ahead to Greece’s crucial debt swap.
The Stoxx Europe 600 index XX:SXXP -2.67% closed 2.7% lower at 258.46, the biggest drop since November. It inspired selling in U.S. stocks as Wall Street traded broadly lower.
Shares of French banks were among the biggest decliners in the pan-European index: Credit Agricole SA FR:ACA -7.24% sank 7.2% as Societe Generale SA FR:GLE -7.80% , lost 7.8%, while BNP Paribas SA FR:BNP -6.41% traded 6.4% lower.
The French CAC 40 index FR:PX1 -3.58% lost 3.6% to 3,362.56, further weighed by Peugeot SA FR:UG -3.49% , off 3.5%, on reports the car maker plans to increase capital by 1 billion euros ($1.32 billion) to fund an alliance with General Motors Co. GM -5.50% .
The broader European banking sector and resource firms led the pullback, as stocks continued to fall in wake of a growth-target cut by China, which fueled concerns about global growth prospects. Further on Monday, U.S. data showed a stronger-than-expected reading for the Institute for Supply Management’s non-manufacturing index, while factory orders declined in January for the first time in three months.
“The real economy has been lagging the stock market for a while and this is a correction where the stock market better tracks the real economy and worse-than-expected numbers out of the U.S. and Europe,” said Steen Jakobsen, chief economist at Saxo Bank. “The real economy has turned a little south and even if it’s not a major move yet, it indicates that we need new news to push higher. It could be the nonfarm payroll numbers from the U.S. or the [debt-swap] deal from Greece later this week.”
Greece’s private debt holders have until Thursday to voluntarily participate in a debt restructuring deal that will cut 53.5% of their principal value and swap old bonds for new ones with longer maturities and lower coupons.
Failure to complete the swap could endanger Greece’s second bailout, potentially leading to a hard default. Rumors earlier in the day renewed worries Greece wouldn’t get enough participation and pushed European stocks lower. The rumors were later denied by Greek officials, according to news reports.
“They had to deny it, but this shows that the deal might not go down as smooth as one had thought,” said Christoph Dolleschal, equity markets strategist at Commerzbank. “There’s a psychological barrier in the markets as we get closer to the deadline.”
A memo from the Institute of International Finance warned that a disorderly default would cause the euro zone more than 1 trillion euros ($1.32 trillion) in damage, Reuters reported. The report also stated that a default would likely force Italy and Spain to seek aid to prevent being engulfed in the region’s debt crisis.
However, the Athens General Index GR:GD +2.77% moved 2.8% higher to stand at 755.06, as shares of National Bank of Greece SA GR:ETE +7.79% surged 7.8%.
Yields on 10-year Italian government bonds IT:10YR_ITA -0.07% jumped 18 basis points to 5.05%, while yields on 10-year Spanish government bonds ES:10YR_ESP -0.07% added 17 basis points to 5.12%.
The Italian FTSE MIB index XX:FTSEMIB -3.39% fell 3.4% to 16,218.06, weighed by UniCredit SpA IT:UCG -5.18% , off 5.2%, as well as Unione di Banche Italiane SCpA IT:UBI -5.46% , down 5.5%, and Banco Popolare SC IT:BP -4.82% , 4.8% lower.
In Spain, the IBEX 35 index XX:IBEX -3.39% stumbled 3.4% to 8,166.60, as BBVA SA ES:BBVA -5.42% lost 5.4%, CaixaBank SA ES:CABK -6.09% shed 6.1% and Banco Santander SA ES:SAN -4.48% fell 4.5%.
Banks were also down in London, with HSBC Holdings PLC UK:HSBA -1.83% HBC -3.43% off 1.8%, Barclays PLC UK:BARC -5.54% BCS -7.52% decreasing 5.5% and Lloyds Banking Group PLC UK:LLOY -3.92% LYG -6.28% trading 3.9% lower.
London’s benchmark FTSE 100 index UK:UKX -1.86% lost 1.9% to 5,765.80.
Dimmer China outlook undercuts resources
Resource stocks declined on the outlook of slower growth in China, the No. 2 global economy and traditionally a large consumer of natural resources.
In the energy sector, BP PLC UK:BP -2.87% BP -3.71% fell 2.9% and BG Group PLC UK:BG -3.00% shed 3% along with drop in oil prices.
It was a similar story among miners, as Antofagasta PLC UK:ANTO -4.26% lost 4.3%, Eurasian Natural Resources Corp. PLC UK:ENRC -4.96% shed 5% and Evraz PLC UK:EVR -6.22% was 6.2% lower. Polymetal International PLC UK:POLY -6.35% sank 6.4% after a downgrade to neutral from buy by UBS.
“China is changing the structure of investments and will invest less in export and infrastructure and more in social welfare. With less money invested in buildings, growth will slow down,” Jakobsen said.
Jakobsen also pointed out that China is one of the biggest markets for car makers. In Germany, auto makers declined.
BMW AG DE:BMW -5.71% traded down 5.1% and Volkswagen AG DE:VOW -4.18% lost 4.5%. Daimler AG DE:DAI -5.48% shed 5.3% as the U.S. National Highway Traffic Safety Administration late Monday said the auto maker recalled more than 100,000 trucks in North America.
The German DAX 30 index DX:DAX -3.40% fell 3.4% to 6,633.11, also pulled lower by Commerzbank AG DE:CBK -8.88% , down 6.7%, after ING cut its rating to hold from buy on worries about downside earnings risk.
