Italy flirts with a bear market as Europe stocks mauled in Wall-Street led selloff

European stocks got hammered on Wednesday, bringing vulnerable Italian markets to the edge of a bear market as a Wall Street selloff continued to rattle investors around the globe.

What are markets doing?
The Stoxx Europe 600 SXXP, -1.14% fell nearly 1.8% to 360.44, which could mark its biggest one-day percentage loss since June 25. That is on the heels of Wednesday’s loss of 1.6%. Two days of losses have dragged the index even lower year to date, for a loss of over 7%.

Germany’s DAX 30 DAX, -0.53% tumbled 1.2% to 11,576.26, while France’s CAC 40 PX1, -0.99% slid 1.6% to 5,124.15 and the U.K.’s FTSE 100 UKX, -1.26% dropped 1.8% to 7,023.60.

Faring just slightly better was Italy’s FTSE MIB Italy index I945, -0.80% which lost 1% to 19,506.37, but the index is nearly 20% from its April high, which could put it in a bear market if that double digit loss is reached.

The euro EURUSD, +0.3906% trading 0.5% higher at $1.1570 compared with $1.1520 late Wednesday. Sterling GBPUSD, +0.2805% was last changing hands as $1.3213 compared with $1.3192 Wednesday.

What is driving the market?
Investors were chiefly spooked by a selloff that started in the U.S. on Wednesday, carried through into Asia, with Wall Street wobbling ahead of Thursday’s open. A number of catalysts have been cited for the volatility, such as rising 10-year Treasury note yields, concerns over global growth and trade tensions between the U.S. and China.

That yield TMUBMUSD10Y, +0.24% was off 5 basis points Thursday to 3.17%.

Opinion: Trump’s tariffs take direct aim at Chinese stocks

U.S. President Donald Trump blamed the Federal Reserve for “going wild” with interest rates, which That was after he made similar comments at rally in Erie, Pa. Analysts appear to doubt the remarks, though, will have much impact on the central bank’s plan to gradually tighten monetary policy.

In Europe, Pierre Moscovici, European Commissioner for economic affairs, said Italy needs to reduce its debt and said the EU wants to “avoid a crisis with Rome,” in an interview with CNBC. Italian assets have been under pressure in recent weeks on worries Italy’s government wants to raise spending and increase its debt burden.

The German government, meanwhile, cut its 2018 and 2019 growth C, citing global uncertainty.

What are strategists saying?
“It is becoming clear that global equity markets are facing a perfect storm of headwinds such as rising U.S. bond yields, U.S.-China trade disputes, global growth concerns and prospects of higher U.S. interest rates. For as long as these themes remain, appetite for stocks are likely to diminish further consequently fueling speculation over the bull party coming to an end,” said Lukman Otunuga, research analyst at FXTM, in a note to clients.

“We are probably all familiar with the risk-factors for today’s market. The trade war, the Italian budget, rising protectionism, a growth slowdown in China, anxiety over U.S. midterm elections—even Brexit. These are all valid concerns that have shown up in world markets. Emerging markets entered a bear market months ago and European shares haven’t made record highs this year,” said Jasper Lawler, head of research at London Capital Group, in a note.

Stock movers
Nearly every sector was in the red, with UBS Group AG UBS, -1.44% UBSG, -3.62% among the biggest heavyweight losers with a 3.2% drop, followed by Zurich Insurance Group AG ZURN, -2.75% down 2.8% and pharmaceutical group Novartis AG NVS, -1.18% NOVN, -2.65% off 2.8%.

Major oil companies were under pressure and weighing on the main Europe index, as crude prices CLX8, -1.42% fell. Total SA TOT, -0.78% and BP were off over 2.4%, with Royal Dutch Shell PLC RDS.A, -1.27% RDS.B, -1.16% down 2.8%.


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