European equities dropped in early trade Wednesday, with
persistent geopolitical tensions in the Middle East offsetting the
impact of upbeat U.S. consumer confidence data.
At least 50 people were killed and more than 132 others wounded
in western Iraq Tuesday, according to local officials.
A Barclays survey published Tuesday showed that the majority of
investors' top concern for markets is now geopolitical unrest. "By
contrast, in the last two surveys, investors thought China and
emerging market growth and Federal [Reserve] policy withdrawal were
the main risks," economists wrote in a note.
The Stoxx Europe 600 waned 0.5% in early European trade with the
U.K.'s FTSE 100 falling just as much. Germany's DAX and France's
CAC both lost 0.6%.
Stocks in Dubai recovered after an ugly slide Tuesday, climbing
2.65% after Arabtec Holding quashed speculation that it might
delist following a prolonged fall in its share price.
Brent crude dropped marginally, but is still trading at a
historically high level of above $114 a barrel.
"Oil prices have been unusually stable in recent years, but
events in Iraq are causing a reassessment of medium-term oil market
fundamentals. We expect this to translate into a phase of higher
long-term prices, and more volatile trading conditions," Barclays
economists wrote in a note.
Figures out of the U.S. Tuesday showed that consumers'
confidence reached its highest level since January 2008 in June,
beating forecasts by economists surveyed by The Wall Street
Journal. Investors Wednesday, however, will be eyeing the third
release of first-quarter U.S. growth domestic product figures,
which is expected to paint a less upbeat picture.
GDP was initially reported to have increased by 0.1% and later
revised to show a contraction of 1.0%.
"Today's GDP revisions are likely to show an even deeper
contraction in the first quarter," Deutsche Bank's U.S. Chief
Economist Joseph LaVorgna said. He added, however, that it isn't
uncommon to see weak quarterly GDP figures followed by a
significant rebound.
"As such, forecasters should not be overly concerned by the
first quarter contraction, because the economy has shown compelling
signs of rebounding in the current quarter--and based on historical
performance, the snapback can be substantial," said Mr.
LaVorgna.
In currency markets, sterling continued to nurse losses
Wednesday after Bank of England Governor Mark Carney Tuesday raised
new concerns about low wage growth in the U.K. and the impact this
may have on the central bank's plans to raise interest rates later
this year.
In early European trade the pound dipped 0.2% to $1.6956.
Currency strategists at BNP Paribas, however, remain upbeat on the
currency in the long term.
"In relative terms sterling continues to offer among the most
attractive rate outlooks in the G-10," they wrote in a note. "The
pound's relative resilience to Carney's comments despite large
bullish pound positioning, suggests longs remain committed to the
positive macro view," they add.
"The first BOE rate hike still appears likely by the end of this
year or by early in 2015," said currency strategist Lee Hardman at
Bank of Tokyo Mitsubishi UFJ.
Write to Josie Cox at josie.cox@wsj.com
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