European stocks dropped for a seventh day to their lowest level since August 2009 as Standard & Poor’s downgrade of U.S. sovereign debt overshadowed the European Central Bank’s purchase of Spanish and Italian government bonds.
Mining companies, carmakers and technology firms paced the selloff amid concern that the lowering of America’s credit rating will exacerbate the economic slowdown. Spanish lenders retreated even after the ECB was said to buy the country’s government bonds in a bid to tame the region’s debt crisis.
The benchmark Stoxx Europe 600 Index dropped 4.1 percent to 228.98 at the 4:30 p.m. close in London, for its biggest retreat since March 2009. The gauge tumbled 9.9 percent last week and has now fallen 21 percent from this year’s high on Feb. 17, entering a so-called bear market, amid concern the global economic recovery is at risk.
“Macro is clearly dominating at the moment -- it’s going to feel like we are dipping in and out of a recession for the immediate future,” said David Hussey, head of European equities at Manulife Asset Management who helps oversee $218 billion. “It’s the wrong time to panic; you have to be measured and wait and see.”
European and U.S. stocks last week posted their biggest weekly selloffs since November 2008 as investors fled equities after U.S. manufacturing and consumer-spending data heightened speculation that economic growth may be faltering.
Asian equities extended the global rout today after S&P downgraded the U.S.’s sovereign-debt rating by one level to AA+ on Aug. 5 and maintained its “negative” outlook, citing political failure to reduce record deficits.
Group of Seven
The Group of Seven nations pledged to “take all necessary measures to support financial stability and growth,” seeking to head off a collapse in investor confidence. Officials will inject liquidity and act against disorderly currency moves as needed, they said in a statement after a call late yesterday European time.
Even so, the VStoxx Index (V2X), which measures the cost of protecting against a decline in shares on the Euro Stoxx 50 Index, climbed 15 percent to 45.3, climbing for a ninth straight day, extending its longest rising streak on record.
National benchmark indexes retreated in all 18 western European markets. France’s CAC 40 Index (CAC) dropped 4.7 percent, Germany’s DAX Index (DAX) declined 5 percent and the U.K.’s FTSE 100 Index slid 3.4 percent. Spain’s IBEX 35 Index and Italy’s FTSE MIB Index lost 2.4 percent. Both gauges jumped more than 4 percent earlier today.
“The downgrade is just one factor in a very broad issue -- this is becoming a synchronized global growth slowdown,” said Ian Harnett, heard of European strategy at Absolute Strategy Research Ltd. on Bloomberg Television. “Markets on both sides of the Atlantic are discounting not only a recession, but actually a very aggressive recession.”
BHP Billiton Ltd. (BHP), the world’s largest mining company, plunged 5.1 percent to 1,846 pence as commodities extended their biggest weekly drop in three months amid concern that the economic slowdown may erode demand. Anglo American Plc lost 6.2 percent to 2,365 pence and Rio Tinto Group sank 6.5 percent to 3,387.5 pence.
Separately, Rio Tinto and Mitsubishi Corp. offered A$1.49 billion ($1.54 billion) for the shares in Coal & Allied Industries Ltd. they don’t own to take the coal miner private.
PSA Peugeot Citroen, which was today downgraded by Morgan Stanley to “underweight,” led carmakers lower, tumbling 9.1 percent to 20.38 euros. Daimler AG (DAI) sank 7.1 percent to 39.01 euros and Volkswagen AG (VOW) retreated 6.1 percent to 108.95 euros.
Among technology companies, Alcatel-Lucent SA plunged 9.7 percent to 2.22 euros, Infineon Technologies AG (IFX) lost 8.3 percent to 5.45 euros and ARM Holdings Plc (ARM) decreased 8.3 percent to 464 pence.
Spanish banks retreated even after the ECB was said to buy Spanish and Italian government bonds.
In a statement after an emergency Governing Council conference call last night, the ECB said it will “actively implement” its bond-purchase program. The bank also called on all euro-area governments to follow through on the steps they agreed to on July 21, including allowing the European Financial Stability Facility to purchase bonds on the secondary market.
Santander, Spain’s largest lender, fell 1.2 percent to 6.37 euros and Banco Bilbao Vizcaya Argentaria SA (BBVA) declined 1.8 percent to 6.38 euros in Madrid trading.
France’s Societe Generale (GLE) SA sank 8.4 percent to 25.13 euros in Paris. The nation’s second-biggest bank and UniCredit denied a report in the Mail on Sunday that the lenders may require a bailout. UniCredit gained 0.4 percent to 1.07 euros.
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