European stocks ended a roller-coaster session at a ten-month low Thursday, amid continuing gloom over the state of the region’s economy.
Europe’s indexes took a fresh tumble hot on the heels of the previous day’s sharp selloff, after data showing inflation in the eurozone sank to a five-year low. Despite a late-session recovery as U.S. stocks bounced back from early declines, the pan-European Stoxx Europe 600 ended 0.4% lower, at its lowest close since mid-December.
The pressure was most intense on stocks and bonds in Greece, Italy and Spain, amid a renewed focus on political and economic troubles in southern Europe’s highly indebted nations. Despite an afternoon recovery, stocks remained firmly lower across the region.
“Something is clearly very wrong in the eurozone. This looks like a deflationary spiral. That is what’s spooking markets right now,” said
Jeremy Batstone-Carr,
chief economist and strategist at London-based brokerage and wealth manager
CAY.LN +0.33%
Charles Stanley Group PLC
U.K.: London
GBp301.00
+1.00
+0.33%
Oct. 16, 2014 4:35 pm
Volume (Delayed 15m)
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25,024
P/E Ratio
0.29
Market Cap
GBp136.99 Million
Dividend Yield
6.15%
Rev. per Employee
GBp171,618
10/16/14 Europe Stocks Fall to Ten-Mont…
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The Stoxx 600 index had plummeted 3.2% on Wednesday, as mounting worries about poor global growth were compounded by some poor U.S. economic data.
Bonds and stocks in former eurozone crisis spots, already bruised by a selloff this week, endured a bumpy ride. The sharp swings were a worrying echo of the worst days of the region’s debt crisis.
Italian and Spanish bond yields climbed sharply to their highest levels in two months, before pulling back later in the session. Yields rise as prices fall.
Italy’s 10-year yield climbed to 2.55%, having hit more than 2.7% during the day, while Spain’s 10-year yield rose to 2.19%. German yields, meanwhile, picked up slightly from all-time lows hit on Wednesday.
Milan’s stock market fell 1.2%, having already lost more than 4% on Wednesday. Madrid stocks slid 1.7%.
“The size of the moves also brings back memories of the depths of the financial crisis,” said
Jan von Gerich,
chief strategist at Nordea.
Moves were much sharper in Greece, with 10-year yields spiking to 8.78%, and its stock market closing 2.2% lower, as investors continued to worry about the country’s plan to make an early exit from its bailout program.
“The Greek government is talking about exiting the program and financing itself on the market. This is the market saying ‘no thanks,’ ” said
Gareth Colesmith,
portfolio manager at Insight Investment.
Investors are returning their focus to very weak economic fundamentals in the eurozone’s so-called periphery, after a long period in which those concerns were masked by hopes the European Central Bank would backstop markets with more aggressive easing measures, according to some analysts.
At 0.3%, September’s annual eurozone inflation was way below the ECB’s target of close to 2%, putting further pressure on the central bank to carry out large-scale bond purchases known as quantitative easing.
“Any intransigence on the part of the ECB would see the market shift from primarily being driven by liquidity to focusing upon fundamental concerns in the broader periphery,” said strategists at Rabobank. But markets are likely to “bully” the ECB into QE, they added.
The late session bounce back for Italy and Spain offered further signs that some investors are keeping the faith with the central bank.
“We still like Spain and Italy. From a nominal growth perspective, the countries aren’t looking great, but you still have a central bank that says it will do whatever it takes,” said Iain Stealey, a portfolio manager at J.P. Morgan Asset Management, which oversees $1.65 trillion.
“We’re not blasé, but when you look at an Italian government yield it offers more than three times what a [German bond] does. That still seems attractive.”
More broadly, the latest sign of economic weakness hit a market already jittery about geopolitical uncertainties and the spread of the Ebola virus.
“Yesterday was such an alarming day in terms of the volatility. We all thought we would get a bounce but that has been far from the case,” said
Philip Lawlor,
a partner at London-based Smith Williamson Investment Management LLP, which manages about £15 billion ($24 billion).
“It is a perfect storm of geopolitics, Ebola, economics resulting in sheer panic,” he said.
—Josie Cox contributed to this article
Write to Tommy Stubbington at tommy.stubbington@wsj.com
