European stocks got hammered on Wednesday, bringing vulnerable Italian markets to a close in bear-market territory as a Wall Street selloff continued to rattle investors around the globe.
What are markets doing?
The Stoxx Europe 600 SXXP, -1.98% fell nearly 2% to 359.65, marking its biggest one-day percentage loss since June 25. That is on the heels of Wednesday’s loss of 1.6%. Two days of losses have dragged the index to a new 52-week low and its lowest close since December of 2016 and pushes the equity gauge to 13.1% shy of its record last hit on April 15, 2015, according to Dow Jones Market Data.
Germany’s DAX 30 DAX, -1.48% tumbled 1.5% to 11,539.35, while France’s CAC 40 PX1, -1.92% slid 1.9% to 5,106.37 and the U.K.’s FTSE 100 UKX, -1.94% dropped 1.9% to 7,006.93, to put the index in correction territory, off 11.05% from its recent all-time high on May 22, 2018. A correction is defined as a drop of at least 10% from a recent peak.
Faring just slightly better was Italy’s FTSE MIB Italy index I945, -1.84% lost 1.8% to 19,356.61, putting the index 21% from its May high, placing the index in a bear market, defined as a decline of at least 20% from a recent all-time high.
The euro EURUSD, -0.0431% trading 0.5% higher at $1.1570 compared with $1.1520 late Wednesday. Sterling GBPUSD, -0.0076% was last changing hands as $1.3213 compared with $1.3192 Wednesday.
What is driving the market?
Investors were chiefly spooked by a selloff that started in the U.S. on Wednesday, carried through into Asia, with Wall Street wobbling ahead of Thursday’s open. A number of catalysts have been cited for the volatility, such as rising 10-year Treasury note yields, concerns over global growth and trade tensions between the U.S. and China.
That yield TMUBMUSD10Y, +0.04% was off 5 basis points Thursday to 3.17%.
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U.S. President Donald Trump blamed the Federal Reserve for “going wild” with interest rates, which That was after he made similar comments at rally in Erie, Pa. Analysts appear to doubt the remarks, though, will have much impact on the central bank’s plan to gradually tighten monetary policy.
In Europe, Pierre Moscovici, European Commissioner for economic affairs, said Italy needs to reduce its debt and said the EU wants to “avoid a crisis with Rome,” in an interview with CNBC. Italian assets have been under pressure in recent weeks on worries Italy’s government wants to raise spending and increase its debt burden.
The German government, meanwhile, cut its 2018 and 2019 growth forecasts, citing global uncertainty.
What are strategists saying?
“It is becoming clear that global equity markets are facing a perfect storm of headwinds such as rising U.S. bond yields, U.S.-China trade disputes, global growth concerns and prospects of higher U.S. interest rates. For as long as these themes remain, appetite for stocks are likely to diminish further consequently fueling speculation over the bull party coming to an end,” said Lukman Otunuga, research analyst at FXTM, in a note to clients.
“We are probably all familiar with the risk-factors for today’s market. The trade war, the Italian budget, rising protectionism, a growth slowdown in China, anxiety over U.S. midterm elections—even Brexit. These are all valid concerns that have shown up in world markets. Emerging markets entered a bear market months ago and European shares haven’t made record highs this year,” said Jasper Lawler, head of research at London Capital Group, in a note.
Nearly every sector was in the red, with UBS Group AG UBS, -3.02% UBSG, -3.55% among the biggest heavyweight losers with a 3.6% drop, followed by Zurich Insurance Group AG ZURN, -3.77% down 3.8% and pharmaceutical group Novartis AG NVS, -2.60% NOVN, -3.62% off 3.6%.
Major oil companies were under pressure and weighing on the main Europe index, as crude prices CLX8, +0.20% tumbled. Total SA TOT, -2.32% and BP were off 3.4% and 2.6%, respectively, with Royal Dutch Shell PLC RDS.A, -2.26% RDS.B, -2.25% down 3%.
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