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Aug. 10, 2018, 2:25 p.m. EDT

European stocks end sharply lower as Turkey contagion fears spook investors

Stoxx 600 moves back into negative territory for 2018

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By Mark DeCambre, MarketWatch


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Europe stocks punch lower on Friday.

European stocks closed sharply lower Friday as worries that problems in Turkey could infect other eurozone countries unsettled investors and sparked a tumble in equity indexes throughout the globe.

What are markets doing?

The Stoxx Europe 600 /zigman2/quotes/210599654/delayed XX:SXXP +1.15%  finished down 1.1% to 385.86. With the move, the pan-European gauge booked a weekly decline of 0.9%, marking its largest weekly drop since June 29, according to Dow Jones Market Data. The decline also pushed the index about 0.9% lower for the year, thus far.

Germany’s DAX 30 /zigman2/quotes/210597999/delayed DX:DAX +1.49% booked a 2% decline to 12,424.35, representing its largest daily decline since June 25. The index lost 1.5% for the week, marking its second straight such decline.

Meanwhile, France’s CAC 40 /zigman2/quotes/210597958/delayed FR:PX1 +1.06%  shed 1.6% to 5,414.68, marking its worst day since June 25. The French bourse recorded a weekly drop of 1.2%, its steepest weekly drop since late June. The U.K.’s FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +1.49% , meanwhile, stumbled 1% lower to close at 7,667.01, holding on to a slight weekly gain of 0.1%. The index has posted a weekly gain in four of the past five weeks.

Meanwhile, the FTSE MIB Italy index /zigman2/quotes/210598024/delayed IT:I945 +1.48% declined by 2.5% to 21,090.78. For the week, the gauge lost 2.3%, while Spain’s IBEX 35 /zigman2/quotes/210597995/delayed XX:IBEX +0.84%  retreated by 1.6% to reach 9,602.10. The IBEX notched a weekly fall of 1.4%.

What’s driving the market?

The tumble for European stocks came after a report from the Financial Times (paywall) said that the European Central Bank has grown increasingly concerned about potential contagion from Turkey’s problems, especially in the banking sector. An address by Turkish President Recep Tayyip Erdogan appeared to worsen woes for the lira with a speech Friday.

Read: 3 reasons the selloff in Turkey’s lira matters for markets all over the world

The news sparked a risk-off atmosphere in EU markets, with Germany, the largest member of the EU, seeing its stock benchmark among the more severe decliners, and southern European countries, Spain and Italy, viewed as among the smaller and more vulnerable to eurozone worries, sliding sharply as well.

The lira /zigman2/quotes/210561895/realtime/sampled USDTRY +0.1348% , which has been consistently hovering around an all-time low against the U.S. dollar this summer, fell to a fresh nadir and European currencies were also dealt a blow as investors rush into U.S. dollars.

Read: Adidas faces a tough second half amid worrisome signs in Western Europe

According to FactSet data, Turkey’s lira is down 27% this week, bringing its year-to-date decline to more than 70%.

The euro /zigman2/quotes/210561242/realtime/sampled EURUSD -0.1628%  was down sharply against the dollar, with one buck changing hands at $1.1400, compared with $1.1526 late Thursday in New York, while the British pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.1905% also took a hit against greenback. Sterling last bought $1.2759, versus $1.2824 Thursday.

What are strategists saying?

“For some time now investors have been looking at the unfolding currency crisis in Turkey as a local difficulty, however the accelerating speed of the declines appears to be raising concerns about European banks exposure to the Turkish banking system,” said Michael Hewson, chief market analyst at CMC Markets UK.

There are “reports that the European Central Bank is concerned that some banks in France, Italy and Spain may not be fully hedged against the precipitous falls in the Turkish Lira through their exposure to the Turkish banking system, has seen the euro fall sharply,” Hewson said. “If these Turkish banks start defaulting on their foreign currency loans to these banks in Europe, with Spain’s banks reportedly having the largest exposure, according to the Bank for International Settlements.”

“European shares lead global stock markets increasingly lower and Wall Street futures are far enough into the red to indicate no comeback by U.S. indices by cash open,” said Ken Odeluga, market analyst at City Index.

“Once again, investors show they perceive a too-strong dollar to be the key medium of harm from increasing trade restrictions and other geopolitical tensions. Anxiety from fresh U.S. sanctions on Russia rises as the ruble spirals lower still, whilst Turkey’s lira offers no solace after an alarming 10% downward spike to its latest nadir,” he said.

Stocks in focus

Weighing on the German index, shares of Deutsche Bank AG /zigman2/quotes/203042512/composite DB +1.90%   /zigman2/quotes/205584254/delayed DE:DBK +1.93% tumbled over 5% after a downgrade to underweight by analysts at Morgan Stanley.

Shares of Spain’s BBVA SA /zigman2/quotes/209653399/delayed ES:BBVA +0.11% /zigman2/quotes/204078760/composite BBVA -0.39%  slumped 5.2%, Italy’s UniCredit SpA /zigman2/quotes/200769686/delayed IT:UCG +0.40%  gave up 6% and France’s BNP Paribas SA /zigman2/quotes/206351084/delayed FR:BNP +1.03%  shed 3%. The banks are among the biggest lenders to Turkey and have come under closer scrutiny by the Single Supervisory Mechanism, the ECB’s arm charged with monitoring the region’s banks, according the FT report.

Novozymes A/S /zigman2/quotes/210424003/delayed DK:NZYM.B +0.48% closed down 3.3% following the release of second-quarter results from the Danish biotech firm.

/zigman2/quotes/210599654/delayed
XX : STOXX
424.87
+4.84 +1.15%
Volume: 0.00
Jan. 24, 2020 3:07p
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/zigman2/quotes/210597999/delayed
DAX
DX : Xetra Indices
13,587.77
+199.35 +1.49%
Volume: 46,187
Jan. 24, 2020 3:07p
loading...
/zigman2/quotes/210597958/delayed
FR : France: Euronext Paris
6,035.33
+63.54 +1.06%
Volume: 37,898
Jan. 24, 2020 3:07p
loading...
/zigman2/quotes/210598409/delayed
UK : FTSE UK
7,619.69
+112.02 +1.49%
Volume: 255,810
Jan. 24, 2020 2:07p
loading...
/zigman2/quotes/210598024/delayed
IT : Borsa Italiana
24,058.82
+351.77 +1.48%
Volume: 0.00
Jan. 24, 2020 3:07p
loading...
/zigman2/quotes/210597995/delayed
XX : Spain: Madrid
9,598.90
+80.40 +0.84%
Volume: 70.26M
Jan. 24, 2020 3:07p
loading...
/zigman2/quotes/210561895/realtime/sampled
US : Tullett Prebon
5.9424
+0.0080 +0.1348%
Volume: 0.0000
Jan. 24, 2020 9:22a
loading...
/zigman2/quotes/210561242/realtime/sampled
US : Tullett Prebon
1.1037
-0.0018 -0.1628%
Volume: 0.0000
Jan. 24, 2020 9:22a
loading...
/zigman2/quotes/210561263/realtime/sampled
US : Tullett Prebon
1.3099
-0.0025 -0.1905%
Volume: 0.0000
Jan. 24, 2020 9:22a
loading...
/zigman2/quotes/203042512/composite
US : U.S.: NYSE
$ 8.56
+0.16 +1.90%
Volume: 6.49M
Jan. 23, 2020 6:30p
P/E Ratio
N/A
Dividend Yield
1.44%
Market Cap
$17.68 billion
Rev. per Employee
$493,032
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/zigman2/quotes/205584254/delayed
DE : Germany: Frankfurt
7.83
+0.15 +1.93%
Volume: 114,013
Jan. 24, 2020 3:03p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
N/A
Rev. per Employee
€417,912
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/zigman2/quotes/209653399/delayed
ES : Spain: Madrid
4.67
+0.0050 +0.11%
Volume: 5.96M
Jan. 24, 2020 3:07p
P/E Ratio
6.64
Dividend Yield
4.51%
Market Cap
€31.02 billion
Rev. per Employee
€180,879
loading...
/zigman2/quotes/204078760/composite
US : U.S.: NYSE
$ 5.16
-0.02 -0.39%
Volume: 3.65M
Jan. 23, 2020 6:30p
P/E Ratio
8.78
Dividend Yield
4.55%
Market Cap
$34.32 billion
Rev. per Employee
$213,392
loading...
/zigman2/quotes/200769686/delayed
IT : Italy: Milan
12.61
+0.05 +0.40%
Volume: 7.95M
Jan. 24, 2020 3:02p
P/E Ratio
5.78
Dividend Yield
2.14%
Market Cap
€28.04 billion
Rev. per Employee
€80,793
loading...
/zigman2/quotes/206351084/delayed
FR : France: Euronext Paris
50.47
+0.52 +1.03%
Volume: 1.54M
Jan. 24, 2020 3:07p
P/E Ratio
8.32
Dividend Yield
5.98%
Market Cap
€62.35 billion
Rev. per Employee
€456,254
loading...
/zigman2/quotes/210424003/delayed
DK : Denmark: OMX
kr. 353.10
+1.70 +0.48%
Volume: 360,120
Jan. 24, 2020 3:07p
P/E Ratio
33.16
Dividend Yield
1.42%
Market Cap
kr.99.54 billion
Rev. per Employee
kr.2.24M
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Mark DeCambre is MarketWatch's markets editor. He is based in New York. Follow him on Twitter @mdecambre.

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