By Sara Sjolin, MarketWatch
European stocks finished lower Thursday after U.S. President Donald Trump pulled out of what would have been a historic meeting with North Korea, citing “open hostility” from the nation’s officials.
Deutsche Bank shares slumped after calls for the chairman to resign.
What are markets doing?
The Stoxx Europe 600 index (STOXX:XX:SXXP) lost 0.5% to close at 390.54, after logging its worst one-day percentage fall since March 22. The pan-European benchmark on Wednesday ended down 1.1% as traders fretted about weak eurozone data and the renewed prospect of a China-U.S. trade war.
Italy’s FTSE MIB index (BORSA:IT:I945) fell 0.7% to 22,749.08, erasing an earlier advance of as much as 1% which had put it among Europe’s best performing indexes on Thursday.
Germany’s DAX 30 index (XEX:DX:DAX) gave up 0.9% to 12,855.09, while France’s CAC 40 index (PAR:FR:PX1) dropped 0.3% to 5,548.45.
The U.K.’s FTSE 100 index (FTSE:UK:UKX) dropped 0.9% to 7,716.74. The blue-chip benchmark turned lower as the pound (XTUP:GBPUSD) rallied on the back of a better-than-expected retail sales reading for April. Sterling bought $1.3374, compared with $1.3348 late Wednesday in New York.
The euro (XTUP:EURUSD) rose to $1.1747, from $1.1699 on Wednesday.
In Turkey, the lira (XTUP:USDTRY) resumed its slide, even after the Turkish central bank on Wednesday intervened to halt the currency’s drop. The dollar bought 4.7438 lira, up from 4.5762 late Wednesday in New York.
What is driving the markets?
European stocks had traded close to the flat line most of Thursday, but were sent firmly lower in the afternoon after Trump called off a planned summit meeting with North Korean leader Kim Jong Un that was due to take place on June 12 in Singapore. Trump said it was inappropriate to go ahead with the meeting based on the “tremendous anger and open hostility” displayed Kim’s most recent statements.
“The World, and North Korea in particular, has lost a great opportunity for lasting peace and great prosperity and wealth. This missed opportunity is truly a moment in history”, Trump said in a letter to the North Korean leader .
In separate Trump news, the U.S. president rekindled concerns about a global trade war by announcing an investigation that could lead to U.S. import tariffs on cars. The news weighed on Europe’s car makers, and the Stoxx Europe 600 Automobiles & Parts Index (STOXX:XX:SXAP) fell 1.8% in Thursday’s action.
Meanwhile, stocks in Italy bounced around after President Sergio Mattarella late Wednesday gave little-known law professor Giuseppe Conte a formal mandate to form a government, potentially ending 11 months of political gridlock.
Conte was proposed as prime minister by the coalition of 5 Star Movement and League, which now stand to take power and make Italy the largest country in Europe to be led by an antiestablishment government.
The two parties are already on a collision course with the EU, having promised to challenge Brussels’s budget guidelines and rules on immigration.They have also vowed to increase fiscal spending and cut taxes — moves some worry could throw the Italian economy into disarray and create a new sovereign debt crisis.
What are strategists saying?
“We see two opposing forces impacting Italian and, by extension, euro-area assets. The slow-burning force is the deepening of the growth cycle, which is helping the balance sheet of the Italian economy to improve, boosting the performance of riskier asset classes,” analysts at UBS said in a note.
“The faster-moving force is the ebb and flow in political risk premium. Our working assumption has been that risk premium would not escalate dramatically enough to derail the positive impact from stronger growth. The events of the last few days in Italy have questioned our views. It is still early to shift camps. Yet it is high time to stress-test key assets and trades to levels of escalation in Italian risk premia,” they added.
The yield on 10-year Italian government bonds (XTUP:BX:TMBMKIT-10Y) fell 2 basis points to 2.395% on Thursday.
Shares of Deutsche Bank AG (FRA:DE:DBK) (NYS:DB) fell 4.8% as critics demanded the resignation of Chairman Paul Achleitner at the bank’s annual general meeting.
Shares of Aryzta AG (SWX:CH:ARYN) plunged 27% after the Swiss bakery group reported a 17% drop in third-quarter revenue and lowered its full-year guidance.
Mediclinic International PLC (LON:UK:MDC) lost 9.4% after the health care group said it swung to a full-year pretax loss due to one-time charges related to its Switzerland business and intangible assets.
United Utilities Group PLC gave up 1.1% after reporting a 2.4% fall in fiscal 2018 pretax profit.
Shares of Tate & Lyle PLC (LON:UK:TATE) rose 7.3% after the food ingredients maker said adjusted profit rose 13% in the last fiscal year.
Shares of Daily Mail & General Trust PLC (LON:UK:DMGT) lost about 10% after the newspaper publisher reported a drop in revenue in the first half of fiscal 2018.