European Stocks Resume Losses as Traders Speculate on Fed Hike

  • Traders expect 68 percent chance of U.S. rate hike in December
  • Stoxx 600 has risen in October in five of past six years

European Stocks Decline on Fed Rate Hike Concerns

European stocks fell for the fourth time in five days as investors speculated on a Federal Reserve rate increase this year.

The Stoxx Europe 600 Index slid 0.5 percent at the close, with miners and energy shares leading declines. The benchmark extended losses after U.S. markets opened, as Alcoa Inc. kicked off the earnings season there by posting worse-than-forecast quarterly profit. More than 150 Stoxx 600 companies are due to report results this month.

European stocks have had a shaky start in October, a month in which they have posted gains in five of the past six years. A rebound on Monday spurred by energy producers was short-lived as concerns resurfaced about whether the U.S. economy is strong enough to withstand higher borrowing costs. The Stoxx 600 fell for four of the past five weeks as traders boosted bets for a rate increase amid improving data.

“I am quite optimistic about my single stocks and quite optimistic for the earnings season, but I don’t know what central banks will do,” said Michael Woischneck, who manages about $180 million as a senior equities manager at Lampe Asset Management in Dusseldorf, Germany. He lists luxury stocks among his top picks. “With the Fed, anything is possible, and if the European Central Bank gives a strong hint it won’t prolong its bond-buying program beyond March, it could derail the market.”

Traders are pricing in a 68 percent chance of a Fed hike in December, up from even odds on Sept. 27, and a 17 percent probability of a move next month. That adds to worries the ECB may turn less accommodative following reports last week that it has held discussions on the best way to taper quantitative easing.

European stock investors are also facing political risks from Italy’s referendum and the fallout of U.K.’s secession vote as they head into the final months of the year. The region’s equity funds have seen outflows for a record 35 weeks, a Bank of America Merrill Lynch report showed last week, and the Stoxx 600 is poised to post its first annual drop since 2011.

Italy’s FTSE MIB Index slid 1 percent for the biggest drop among western-European markets on Tuesday, with utilities and Intesa Sanpaolo SpA contributing the most to losses. The FTSE 100 Index, which rose as much as 0.5 percent to an intraday record, closed 0.4 percent lower. While the U.K. benchmark has posted the biggest rally among developed markets this year, strategists say it will lose momentum before the year is up.

HSBC Holdings Plc fell 1 percent from a 15-month high, snapping an eight-day winning streak. Nordea Bank AB also weighed on the Stoxx 600, with a 2.6 percent drop. Lloyds Banking Group Plc and Banco Bilbao Vizcaya Argentaria SA tempered the losses, climbing more than 2.4 percent.

Among other stocks active on Tuesday, Old Mutual Plc -- which gets most of its revenue from South Africa -- fell 5.5 percent in London after the country’s finance minister was summoned to appear in court next month on fraud charges. Separately, its wealth-management unit said it expects market conditions to remain difficult because of uncertainty around Brexit.

LVMH climbed 4.5 percent, leading luxury-goods shares higher, after posting sales that topped analysts’ estimates. Christian Dior SE and Swatch Group AG rose at least 4.1 percent. Victrex Plc rose 5.4 percent after posting better-than-forecast annual sales.

Travel shares also advanced, with Deutsche Lufthansa AG up 5 percent after reporting an increase in passenger traffic in September. IAG SA gained 3.7 percent after Bank of America Merrill Lynch said it preferred the shares among European airlines, citing cost savings and exposure to Heathrow airport.

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