European shares hit three-month low over Ukraine tensions

Broad-based sell-off of stocks was also linked to Argentina’s decision to default on bond debt

Traders on the floor of the New York Stock Exchange. Photograph: Brendan McDermid/Reuters

Traders on the floor of the New York Stock Exchange. Photograph: Brendan McDermid/Reuters

Fri, Aug 1, 2014, 12:26

European stocks fell today for the third straight session in brisk trade, with a broad index hitting a three-and-a-half month low as tension between Russia and the West as well as concerns around losses at Banco Espirito Santo gnawed at sentiment.

Technical charts sent a strong negative signal on Germany’s Dax benchmark, with the index breaking below its 200-day moving average for the first time in two years. “The situation in Argentina, the problems with Banco Espirito Santo and geopolitical tensions, particularly with Russia, are fuelling this bout of profit taking,” Barclays France fund manager Philippe Cohen said.

Argentina defaulted yesterday for the second time in 12 years following the collapse of last-ditch talks with holdout creditors, raising worries over the outlook for South America’s number three economy. Spanish stocks underperformed again today, with Madrid’s IBEX dropping 1.9 per cent, as traders cited worries over Spanish companies’ exposure to Latin America.

Shares in Banco Espirito Santo shed 4.5 per cent, adding to its 42-per cent drop yesterday when the bank posted a 3.6 billion euro loss and higher-than-expected provisions to cover its exposure to companies owned by its founding Espirito Santo family.

Shares in France’s Credit Agricole, which holds a significant stake in the bank, have lost 6.8 percent this week. The massive loss at the Portuguese bank has dragged Europe’s banking sector index down 3.4 per cent this week, reviving concerns over the sector, particularly in Southern Europe, hit hard by the years-long sovereign debt crisis.

Investors have also been worrying about the impact of sanctions against Russia. This week, the European Union and the United States targeted its energy, banking and defence sectors in the strongest international action yet over Moscow’s support for rebels in eastern Ukraine.

About 40 European blue-chips derive more than 5 per cent of their revenues from the Russian market, including Austria’s Raiffeisen Bank and Finnish tyre maker Nokian Renkaat , according to data from MSCI, while European oil majors also have significant operations in Russia. Earlier, the FTSEurofirst 300 index of top European shares was down 1.4 per cent at 1,330.81 points, a level not seen since mid-April, while the euro zone’s blue-chip Euro STOXX 50 index fell 1.5 percent at 3,069.60 points, a level not seen since late March.

Adding to the negative mood, investors expect strong US monthly job data to strengthen the case for an early interest rate hike by the US Federal Reserve.

The Fed’s ultra-loose monetary policy has helped fuel a near 40-per cent rally in European equities over the past two years. “I still think good data is good for the stock market in the long term because it means the global recovery is still on track,” Tradenext trader Farhan Ahmad said. “Short term, however, we may see some reverberation in the stock market and some further weakening.”

Reuters