European Stocks Drop on France, Italy as Political Risks Sharpenby
European stocks drifted lower on Monday as investors turned cautious on the region’s assets including bonds and the euro as their focus shifted to potential political risks.
The Stoxx Europe 600 Index fell 0.7 percent at the close, with 18 of 19 sectors lower. The benchmark index, which has moved mostly sideways this year, is up just 0.05 percent in 2017, lagging a 2.4 percent gain in the S&P 500 Index. Over the weekend, prospective French presidential candidate Marine Le Pen unveiled a manifesto pledge to take the country out of the currency bloc should she win.
The Euro Stoxx 50, a gauge of euro-area shares, slid 1.1 percent, crossing below its 50-day moving average for the first time since early December.
- The yield spread between France and Germany’s 10-year bonds widened to its most since 2012 as the political plot thickened amid the most unpredictable French election campaign in decades.
- In Italy, where equity markets are seen as among the most risky in Europe due mostly to its fragile banking sector, stocks underperformed. The FTSE MIB fell 2.2 percent. France’s CAC 40 index dropped 1 percent in its largest decline in a week.
- European Central Bank President Mario Draghi said the euro-region economy and inflation still aren’t strong enough to allow for a withdrawal of monetary stimulus, in testimony at the European Parliament.
- Shares in automakers across Europe underperformed, with the sector index falling 1.4 percent. Bank of America Merrill Lynch equity strategists downgraded the sector to underweight, saying the recent rally looks stretched and the group faces structural challenges.