European Stocks Halt Rebound as Banks, Commodity Producers Slide

Crude Oil Is Mood Swinger for European Stocks
  • Spanish shares fall as Socialists broach Podemos alliance
  • Stoxx 600 on track for worst January drop since 2008

Declines in commodity shares and lenders put an end to a rally in European stocks.

The Stoxx Europe 600 Index fell 0.6 percent at the close of trading in London. Seadrill Ltd. led the slide, tumbling 8.9 percent as oil fell after the world’s biggest crude exporter said it’s keeping up investments in energy projects. A gauge of miners also dropped, while lenders slid the most among industry groups.

The rout in commodity prices is once again weighing on risk assets amid concern that China’s slowdown will hurt global growth. After reaching the cheapest valuation in about two years on Wednesday, the Stoxx 600 enjoyed its biggest two-day surge since 2011 on speculation of more stimulus. European Central Bank President Mario Draghi signaled measures could come as soon as March.

“Draghi stopped some of the bleeding last week, but the questions surrounding the global macro economy haven’t gone away,” said Peter Garnry, head of equity strategy at Saxo Bank A/S. “Investors are losing faith in equity valuations -- you can’t justify the multiples we were paying if the world is slowing down. The collapse of oil will continue to take its toll on corporate earnings. There’s a lot of event risk this week.”

The 5 percent rebound in the two days of last week took the Stoxx 600’s valuation to 14.4 times estimated profit on Friday, up from a low of 13.8 on Wednesday. The gauge has lost 8.1 percent in January, heading for its worst start to a year since 2008.

Italian shares, the highlight of 2015, are among the worst performers this year on concern over swelling bad debt at its lenders. The country’s FTSE MIB Index fell 2 percent today, the most among major western-European markets. Banca Popolare di Milano Scarl, UniCredit SpA and Banco Popolare SC lost more than 6 percent.

Spain’s IBEX 35 Index slid 1.8 percent. Socialist leader Pedro Sanchez and his would-be deputy prime minister officially broached the issue of forming an alliance for the first time, as the chances of Mariano Rajoy’s People’s Party clinging on to power receded. Portugal’s PSI 20 Index, on the other hand, advanced 0.3 percent after Marcelo Rebelo de Sousa, a former Social Democrat leader preaching compromise between the country’s parties, won a presidential election.

Among shares active on corporate news, Kingfisher Plc sank 6.1 percent after Europe’s largest home-improvement retailer said that short-term earnings will suffer from a five-year plan to boost profit.

Denmark’s Jyske Bank A/S climbed 2.6 percent after saying it hit a profitability target despite earlier warnings that it would be difficult. Imagination Technologies Group Plc jumped 20 percent, the most since June 2009, after a report that the company will start a cost-cutting program. Dassault Aviation SA added 3.7 percent after France and India signed an agreement over a deal for 36 of the company’s warplanes.

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