European stocks fall as caution sets in on renewed Brexit concerns
European stock markets extended losses on Tuesday as investors took stock of renewed concerns over the Brexit vote and its impact on the wider economy.
The pan-European STOXX 600 was down 1 percent.
In the U.K., investors are taking stock of the increasingly fractious political scene and economic outlook in the country following the vote to leave the European Union (EU) on June 23. On Monday, another leading proponent of the Brexit campaign, Nigel Farage, resigned as leader of the U.K. Independence Party (UKIP) saying he’d “done his bit.”
Uncertainty over Britain’s future following the Brexit vote, saw Markit’s construction PMI for the U.K. drop to 46.0 in June, the lowest level in seven years. A YouGov/CEBR survey released on Tuesday also showed that confidence among British businesses fell sharply after the Brexit vote.
And on Monday S&P Global Ratings slashed its 2017 and 2018 growth forecasts for the euro zone and U.K. Meanwhile, Britain’s construction industry suffered its worst contraction in seven years in June, Markit’s Purchasing Managers’ Index showed on Monday. The negative data has hit investor sentiment.
Meanwhile in Asia, markets were mixed on Tuesday, likely taking cues from European equities, which slid Monday on renewed Brexit concerns.
Indices in Japan and Hong Kong were trading lower but Chinese mainland markets bucked the trend following positive services sector data.
A private survey of small and medium companies in China showed activity in the services sector grew at a quicker pace in June. The Caixin Purchasing Managers’ Index (PMI) for June was at 52.7, compared with 51.2 in May, marking the fastest increase in 11 months. Levels above 50 indicate expansion.
The Italian banks were again in focus amid concerns over their health. Banca Monte dei Paschi di Siena was suspended limit down after a seven percent fall at the open. After it began trading again, the stock was down around 4 percent. This comes after the European Central Bank asked BMPS to slash its bad debts by over 40 percent in three years, Reuters reported.
“The fact is the Italian government is up the proverbial creek without a paddle with its banks, unable to bail them out and stuck with a portfolio of up to 360 billion euros ($400 billion) of non-performing loans that are strangling the life out of the Italian economy,” Michael Hewson, chief market analyst at CMC Markets, wrote in a note on Tuesday.
“Of those loans Monte di Paschi, it is estimated, has about 48 billion euros worth, and with a market capitalzsation of about 1 billion euros, it’s not hard to see where its problems lie.”
Unicredit however was trading higher after Goldman Sachs raised its outlook on the stock from “neutral” to “buy”, adding that it would need to raise between 6.7 billion and 9.6 billion euros in extra capital to support and increase in so-called Common Equity Tier 1 ratio of 12 percent – a measure of a bank’s financial strength.
Meanwhile, Switzerland’s UBS was in negative territory after it received a disclosure order from the Swiss Federal Tax Administration to provide information based on a French request for international administrative assistance in tax matters. It concerns UBS accounts pertaining to current and former French-domiciled clients based on data between 2006 and 2008. UBS said it will “take legal steps to have the admissibility of the administrative assistance request evaluated by the Swiss Federal Administrative Court”.
Brexit fallout continues
Elsewhere, fallout from the Brexit vote continued as Standard Life Investments suspending all trading in its U.K. real estate fund on Monday, sending shares in Standard Life sharply lower.
U.K. housebuilder Persimmon posted a 12 percent rise in revenue in the first half of fiscal 2016, but said it was too early to judge the effect Brexit could have on Britain’s real estate market. Despite the positive results, Persimmon shares were sharply lower along with other housebuilders such as Bovis Homes and Taylor Wimpey.
Ryanair rallies
In the telecoms space, CK Hutchison Holdings and Vimpelcom are in talks with Iliad to create a fourth Italian telecoms network operator, Reuters reported, citing two people familiar with the matter. Iliad shares fell slightly.
Shares of budget airline Ryanair were in the black after it reported June traffic rose 11 percent.
In other news, suicide bombers struck three cities across Saudi Arabia with attacks in Medina, Qatif and Jeddah on Monday, killing at least four security officers in an apparently coordinated campaign of attacks as Saudis prepared to break their fast on the penultimate day of the holy month of Ramadan, Reuters reported. The attacks come after 175 people were killed in a suicide bombing attack in Iraq on Monday.
The Bank of England publishes its bi-annual Financial Stability Report at 10.30 a.m. London time
Source: CNBC
