Europe Markets: European stocks tumble as ECB raises questions about Turkey contagion

European stocks got knocked sharply lower on Friday as worries about spillover effects from an escalating financial crisis in Turkey knocked eurozone currencies and equity bourses sharply lower.

What are markets doing?

The Stoxx Europe 600 SXXP, -0.83%   was down 0.7% to 387.30, after finishing Thursday’s session with a 0.1% gain. With the move, the pan-European gauge is now on pace for a weekly slide. It’s trading down about 0.5% for the week, pushing the benchmark back into negative territory for the year.

Germany’s DAX 30 DAX, -1.60%  traded 1.3% lower at 12,509.77, after booking a 0.3% gain to 12,676.11 Thursday, with the Germany index set for 0.9% weekly decline. Meanwhile, France’s CAC 40 PX1, -1.13%  fell by 1% at 5,447.78, after ending the previous session little changed at 5,502.25. The French equity benchmark is set for a weekly fall of about 0.6%. The U.K.’s FTSE 100 UKX, -0.64%  slid 0.5% to 7,702.86, after falling by a similar amount on Thursday, but is clinging to a 0.6% weekly return.

Meanwhile, the FTSE MIB Italy index I945, -1.36%   declined by 1.3% to 21,349.93 , after declining by 0.7% on Thursday. For the week, the gauge is on track for a 1.1% fall, while Spain’s IBEX 35 IBEX, -1.01%  retreated by 1.2% at 9,641.60, after falling by 0.8% the day before. The IBEX also is on pace for a 1.1% decline.

The euro EURUSD, -0.5293%   edged down 0.5% to $1.1553, compared with $1.1610 late Thursday in New York. The British pound GBPUSD, -0.3977%  slumped 0.5% to $1.2756.

What’s driving the market?

The tumble for European stocks comes after a report from the Financial Times (paywall) said that the European Central Bank has grown increasingly concerned about potential contagion from Turkey’s problems, especially in the banking sector.

The news sparked a risk-off atmosphere in EU markets, with Germany, the largest member of the EU, seeing its stock benchmark among the more severe declines, and southern European countries, Spain and Italy, viewed as among the smaller and more vulnerable to eurozone worries, sliding sharply as well.

The lira USDTRY, +6.7640% which has been consistently hovering around an all-time low against the U.S. dollar this summer, fell to a fresh nadir and European currencies were also dealt a blow as investors rush into U.S. dollars.

According to FactSet data, Turkey’s lira is down 13.3% this week, bringing its year-to-date decline to more than 35%.

The euro EURUSD, -0.5293%  was down sharply against the dollar, with one buck changing hands at $1.1453 compared with $1.1526 late Thursday in New York, while the British pound GBPUSD, -0.3977% also took a hit against greenback. Sterling last bought $1.2758, versus $1.2824 Thursday.

What are strategists saying?

“For some time now investors have been looking at the unfolding currency crisis in Turkey as a local difficulty, however the accelerating speed of the declines appears to be raising concerns about European banks exposure to the Turkish banking system,” said Michael Hewson, chief market analyst at CMC Markets UK.

There are “reports that the European Central Bank is concerned that some banks in France, Italy and Spain may not be fully hedged against the precipitous falls in the Turkish Lira through their exposure to the Turkish banking system, has seen the euro fall sharply,” Hewson said. “If these Turkish banks start defaulting on their foreign currency loans to these banks in Europe, with Spain’s banks reportedly having the largest exposure, according to the Bank of International Settlements.”

Providing critical information for the U.S. trading day. Subscribe to MarketWatch's free Need to Know newsletter. Sign up here.

Be Sociable, Share!

Related Posts


MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.

This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.

The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The educational training program and software services are provided to improve financial understanding.

The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.