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European shares suffer worst day since 2011 on Fed, China
June 20, 2013 / 4:41 PM / in 4 years

European shares suffer worst day since 2011 on Fed, China

* FTSEurofirst 300 down 3.1 pct, Euro STOXX 50 down 3.6 pct

* All sectors fall as Fed signals reduction to asset purchases

* Weak Chinese data further depresses sentiment

By Francesco Canepa

LONDON, June 20 (Reuters) - European shares posted their steepest one-day fall in 19 months on Thursday, hit by the prospect of reduced U.S. monetary stimulus and fresh signs of sluggish Chinese economic growth.

The pan-European FTSEurofirst 300 index fell 3.1 percent to 1,143.99 points after the Federal Reserve said late on Wednesday a stronger U.S. economy meant it would be likely to reduce its hefty asset purchases this year.

The Fed’s quantitative easing programme (QE), along with similar moves from global central banks, has helped drive a 20 percent European equity rally in the past year in spite of a shrinking domestic economy and falling earnings expectations.

“The market has had its safety blanket taken away,” Chris Wyllie, chief investment officer at wealth manager Iveagh, said.

Thursday’s fall, the steepest since November 2011, saw only 17 of the 601 stocks in the STOXX Europe 600 index posting gains and all sectoral indexes close in negative territory.

Shares in financial services firms and banks , which are highly sensitive to trends in global markets and have been among top gainers in the past year, both shed 3.6 percent as global bonds and shares fell.

Mining, auto and consumer goods stocks ended down between 3.9 and 4.3 percent as data showed factory activity in China, the world’s top consumer of metals and a key client for European exporters, pointed to a sharper second quarter slowdown.

Swiss luxury goods stocks Swatch and Richemont each fell 5.2 percent, which traders attributed to data showing a fall in Swiss exports.

Some analysts warned that low demand from emerging markets and the withdrawal of U.S. monetary support would hit European stocks especially badly given that the domestic economy continues to contract, albeit at a more gentle pace than at the start of the year.

Steve Ruffley, strategist at InterTrader, recommended selling Germany’s Dax index, a play on Europe’s industrial production and Chinese demand, and buying the U.S. S&P 500, which he sees as benefitting from the United States’ superior economic growth.

The VSTOXX implied volatility index, which measures option prices on euro zone blue chips and is regarded as a gauge of future market jitters, rose 15.7 percent to 23.6, matching its May high.

BUYING OPPORTUNITIES

After a 3.6 percent fall on Thursday and a 9.3 percent pullback since late May, shares in the Euro STOXX 50 index are now down for the year, leading some investors to start looking for buying opportunities.

Citi’s equity trading strategy team tipped using options to bet on the Euro STOXX 50 rising to 2,700-2,750 by September, from 2,586.45 points at the close on Thursday.

They argue a strengthening of the U.S. economy should be seen as a positive for global equities and stress the Fed is prepared to postpone the curbing of its stimulus programme.

Iveagh’s Willye also said he was starting to consider increasing its risk allocation, starting from the emerging markets, which have seen the sharpest selloff in the past month, followed by Europe.

“(Fed’s chairman Ben) Bernanke has been very careful to say that QE is open ended and on days like this people are in danger of losing sight of this,” Willye said.

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