European stocks fell on Wednesday, weighed by the return of geopolitical concerns after comments by U.S. President Donald Trump and a round of disappointing eurozone data.
The pound dropped to a 2018 low after U.K. inflation unexpectedly slipped in April.
What are markets doing?
The Stoxx Europe 600 index SXXP, -1.24% lost 1% to 392.85, pulling back from Tuesday’s close, which was the highest since Jan. 29. A loss of this size would mark the benchmark’s worst day since March 22, when it declined 1.6%.
Germany’s DAX 30 index DAX, -1.63% slumped 1.6% to 12,960.79, while France’s CAC 40 index PX1, -1.48% dropped 1.3% to 5,564.61.
The U.K.’s FTSE 100 index UKX, -1.21% fell 0.8% to 7,813.30.
In Italy, the FTSE MIB index I945, -1.58% slid 1.6% to 22,837.10 as traders waited for President Sergio Mattarella’s decision on the prime minister candidate put forward by a euroskeptic alliance to lead their coalition government.
The euro EURUSD, -0.6452% fell to $1.1712 from $1.1780 late Tuesday in New York.
The pound GBPUSD, -0.6254% exchanged hands at a fresh 2018 low at $1.3341, down from $1.3432 late Tuesday.
What is driving the market?
Stocks in Europe declined as part of a global selloff spurred by worries about Trump’s latest comments on North Korea and the China trade talks. The president said late Tuesday there is a “very substantial chance” the historic meeting between him and North Korea’s leader Kim Jong Un won’t happen in June as planned unless Pyongyang meets certain conditions.
Separately, Trump said Tuesday that he was “not satisfied” with the latest round of trade talks with China. Equity markets world-wide have rallied in recent days on signs of an easing in tensions between the world’s two largest economies, making a full-blown trade war appear less likely.
Closer to home, news emerged on Tuesday afternoon that the U.S. may not extend the exemption for the European Union on steel and aluminum tariffs. EU officials said the Trump administration had proposed cutting the trade bloc’s steel exports to the U.S. by 10%.
What’s going on in Italy?
Italian yields surged as uncertainty lingered over the country’s political future. The potential coalition of antiestablishment parties 5 Star Movement and the League have reportedly run into difficulties getting their prime minister candidate approved by President Mattarella.
Doubts over the candidate — a little known law professor named Giuseppe Conte — have cropped up amid questions over his resume and academic achievements. According to Conte’s resume, he has “perfected” his studies at prestigious universities such as La Sorbonne in France and New York University, but both schools say they have no records of his attendance, according to media reports.
The yield on 10-year Italian bonds TMBMKIT-10Y, +4.21% jumped 12 basis points to 2.426%.
What data are in focus?
The latest economic activity data from the eurozone came in weaker than expected. The composite flash purchasing managers index for the currency union fell to an 18-month low in May at 54.1. Economists had expected a 55.1 reading, according to FactSet consensus estimates. A reading above 50 indicates an expansion in activity.
In France, data showed unemployment rose in the first quarter of the year, seen as another sign the eurozone recovery of 2017 is losing momentum in 2018.
U.K. inflation unexpectedly dipped in April, according to the Office for National Statistics. Consumer prices rose 2.4% last month, down from 2.5% in March and missing forecasts of 2.5% reading.
What are strategists saying?
“Whilst certainly not entirely gloomy, the euroboom has descended pretty quickly and the outlook is not overly positive,” said Neil Wilson, chief market analyst at Markets.com, in reference to the latest PMI data.
“Add in the political risks emerging in Italy, and it all looks quick tricky for the ECB as it tries to exit QE. As previously argued, the ECB missed its window of opportunity late last year to really push normalization and is now in more of a bind,” he said in a note, referring to the European Central Bank’s steps toward ending a stimulus effort known as quantitative easing.
Stock movers
Euronext NV ENX, -5.36% slid 5% after UBS downgraded the stock-exchange operator to sell from neutral.
Shares of Marks & Spencer Group PLC MKS, +4.76% MAKSY, +3.83% jumped 6.5% after the retailer posted profit ahead of expectations.
Standard Chartered PLC STAN, +0.35% rose 0.4% after a report in the Financial Times that Barclays PLC BARC, -1.30% BCS, -1.70% is exploring merger options, including a tie-up with Standard Chartered. Barclays shares were down 0.7%. Sources close to Barclays, however, dismissed the report, according to Reuters.
Babcock International Group PLC BAB, +2.46% climbed 2% after the defense-services provider said profit before tax increased by 8% in fiscal 2018.