EUROPE MARKETS: Auto Makers, Italian Stocks Lead European Shares Lower

By Carla Mozee and Sara Sjolin, MarketWatch

European stocks fell Thursday, facing their fourth loss in five sessions, with auto shares under pressure and Italian shares flipping down following developments surrounding the country's coalition government.

U.K. stocks erased an earlier gain as the pound rallied after the Bank of England signaled a rate rise could come in August.

How markets are performing

The Stoxx Europe 600 Index fell 0.3% to 38336, with the utility and financial sectors losing the most. The index on Wednesday rose 0.3% (http://www.marketwatch.com/story/european-stocks-stage-recovery-but-us-china-trade-tensions-remain-2018-06-20), the first rise after three straight losses.

Italy's FTSE MIB was faring the worst, swinging lower to fall by 1.2% to 21,851.93. Germany's DAX 30 index dropped 0.7% to 12,604.93.

France's CAC 40 index declined 0.4% to 5,352.66, and Germany's DAX 30 index fell 0.7% to 12,604.61.

Spain's IBEX 35 was down 0.5% to 9,738.10, and the U.K.'s FTSE 100 lost 0.5% to 7,586.86.

The euro fell to $1.1534, from $1.1577 late Wednesday in New York. The pound rose to $1.3201 from $1.3173 on Wednesday.

What's driving markets

Most European bourses had logged gains when trading got under way, indicating markets were still recovering from Tuesday's slide in global equities. Stocks were rattled by an escalation in the trade fight between the U.S. and China, the world's two largest economies.

Read:China can't match Trump in a tariff fight, but it does have other weapons (http://www.marketwatch.com/story/china-cant-match-trump-in-a-tariff-fight-but-it-does-have-other-weapons-2018-06-19)

But Germany's DAX 30 benchmark wasn't able to gain much traction on Thursday, with shares of auto makers falling. Daimler AG late Wednesday unexpectedly issued a profit warning (https://www.wsj.com/articles/daimler-issues-profit-warning-as-chinese-tariffs-hit-u-s-built-suvs-1529530019?mod=mktw), saying it will be hurt by Chinese retaliatory import duties on vehicles built in the U.S. Meanwhile, Daimler, BMW AG and Volkswagen AG are supportive of a call to abolish EU-U.S. tariffs for imported cars (https://www.wsj.com/articles/germanys-largest-auto-makers-back-abolition-of-eu-u-s-car-import-tariffs-1529492027?mod=mktw), a bid to help shield the industry from a brewing trade war.

Italian stocks, meanwhile, fell into the red following reports that two euroskeptic lawmakers from Italy's League party -- Alberto Bagnai and Claudio Borghi -- have been named as the head of the Senate's finance committee and president of the House's budget and finance committee, respectively. Italian bond prices dropped following the news, sending the yield on Italy's 2-year up by 17 basis points to 0.73%, according to Tradeweb. When prices fall, debt yields rise.

The antiestablishment League and the 5 Star Movement parties have together been running Italy's government since early June.

What strategists are saying

"Early gains across European markets are rapidly slipping away...indicating that markets are still not entirely convinced that trade wars have disappeared below the horizon. Outside of the U.S. tech sector, which seems impervious to all worries, equities have been broadly unable to hold on to their gains this week," said Chris Beauchamp, chief market analyst at IG, in a note. "[I]nvestors apparently [are] showing little desire to hold on to risk assets while the macro backdrop seems so uncertain for the time being."

Bank of England rate decision

In London, the Bank of England as expected kept rates on hold, but the vote split showed a surprisingly hawkish tilt. Three out of the nine policy makers voted in favor of higher rates, up from two at the May meeting.

"A majority of economists expect a rise in August and there was nothing in the bank's comment today to dissuade them. A tightening of the MPC vote to 6-3 indicates the hawkish direction. The bank said that it expects the dip in GDP growth to be temporary, meaning its central case of gradual tightening from here remains in place," said Ed Monk, associate director at Fidelity International, in a note.

Stock movers

Shares of car makers struggled, with Daimler AG (DAI.XE) tumbling 4% to trade at prices not seen in nearly two years. Volkswagen AG (VOW.XE) dropped 2.5%, BMW AG (BMW.XE) lost 2.6%. In Milan, shares of Fiat Chrysler Automobiles NV (FCA.MI) (FCA.MI) were off 2.9%.

Also in Milan, Italian bank stocks were knocked down, with UniCredit SA (UCG.MI) lower by 2.2% and Unione di Banche Italiane SpA (UBI.MI) down 1.6%.

Dixons Carphone PLC shares (DC.LN) rose 4.4% as the electrical goods retailer posted fiscal year 2018 adjusted pretax profit in line with the company's expectations (http://www.marketwatch.com/story/dixons-carphone-profit-meets-revised-guidance-2018-06-21).

Shire PLC (SHPG) added 1.8% after the U.S. Food and Drug Administration approved the drugmaker's Cinryze hereditary angioedema treatment to be made available for children aged six years and older.

(END) Dow Jones Newswires

June 21, 2018 07:40 ET (11:40 GMT)

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