EUROPE MARKETS: European Markets Slammed In Risk-off Trading
May 29 2019 - 6:29AM
Dow Jones News
By Dave Morris
Investors ran to the safety of government bonds on Wednesday,
sending European markets into a tailspin.
How did markets perform?
The Stoxx 600 fell 1.5% to 370.3, after closing down 0.2%
Tuesday.
The U.K.'s FTSE 100 declined 1.4% to 7,166.8 following a nearly
flat close Tuesday.
The pound shrank 0.2% to $1.2636 after ending Tuesday
essentially flat.
In Germany, the DAX (DAX) dipped 1.4% to 11,857.1. It sank 0.4%
Tuesday.
France's CAC 40 was 1.8% lower at 5,215.4, which had also
retreated 0.4% Tuesday,
Italy's FTSE MIB was down sharply to 19,933.2, a 1.6% fall. It
was 0.5% lower Tuesday.
What's moving the markets?
Bond yields on U.S. Treasurys and other safe assets are swooning
as investors positioned themselves for the potential of worsening
economic conditions. The U.S. 10 year bond's yield fell to its
lowest level in nearly two years, falling three basis points to
2.23%. The move has been viewed as a flight to quality assets in
preparation for a possible downturn, but as Ian Williams, economics
and strategy research analyst for Peel Hunt argues, macroeconomic
data has turned broadly positive. In the Eurozone, economic
sentiment index improved to 105.1 in May from 104 in April, strong
household and corporate lending growth was also bullish. In the
U.S., Williams writes, consumer confidence was higher in May at
134.1 than in April (129.2) and the labor market remains
competitive.
"After weakening during Q1, the labor market readings reflected
the recent hard data suggesting continued tightness in the market,
with a growing proportion of respondents suggesting that jobs are
plentiful and expecting that availability to improve further."
Italy's sovereign bond yields eased slightly from the open,
edging down nearly a basis point as right-wing anti-European Deputy
Prime Minister Matteo Salvini geared up for a fight with the
European Commission over budgets. Italy's 10-year bond yielded
2.64%, one of the few sovereign 10-years to see rising yields in
recent days, suggesting investors don't consider Italy's government
debt as safe as others.
In economic data, German unemployment unexpectedly increased in
May to 5%, up from April's figure of 4.9% and consensus
expectations that it would remain unchanged. France's gross
domestic product (GDP) for the first quarter arrived in line with
expectations at 0.3%. Inflation disappointed, however, with
Consumer Price Inflation (CPI) for May, not seasonally adjusted,
came in 0.2% higher month over month, versus 0.3% consensus.
Consumer Spending in April beat the consensus with a 0.8% gain,
versus analysts' expectations of 0.4%.
Which stocks are active?
Shares in auto maker Renault SA (RNO.FR) continued to rise as
investors digested the implications of Saturday's news that it was
in merger talks with Fiat Chrysler Automobiles NV (FCA.MI).
Analysts largely welcomed the news, citing the prospect of cost
savings from the combination. Renault's share price rose a further
0.4% on Wednesday.
The contest to replace outgoing U.K. Prime Minister Theresa May
as Conservative party leader is under way, and the political
uncertainty has drawn fresh attention to the opposition Labour
Party's plans to nationalize energy and water utilities. The market
appears to be discounting a report in the Financial Times Wednesday
(https://www.ft.com/content/2ec4e042-7e30-11e9-81d2-f785092ab560?FTCamp=engage/CAPI/webapp/Channel_FACTSET//B2B)
that investors are up in arms over Labour's plan to compensate
shareholders below market value for utilities. Shares in United
Utilities Group PLC(UU.LN) and Severn Trent PLC (SVT.LN) are both
up 0.9%. Energy utility National Grid PLC (NG.LN) is also 0.5%
higher, though it has not yet reclaimed the heights seen before its
full-year earnings May 16.
One of Europe's largest steelmakers, ArcelorMittal SA(MT.FR),
said it would lower primary production at sites in Dunkirk, France
and Eisenhuettenstadt, Germany and reduce production at its site in
Bremen, Germany in the fourth quarter. The company blamed market
weakness for the reduction. Shares traded 4.3% lower on
Wednesday.
Provident Financial PLC (PFG.LN) shares were down nearly 2% on
news that regulators were weighing whether to investigate a planned
hostile takeover of the subprime home lender by Non-Standard
Finance PLC (NSF.LN). The Competition and Markets Authority will
decide by July 23 whether to move forward with a probe.
(END) Dow Jones Newswires
May 29, 2019 06:14 ET (10:14 GMT)
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