European Stocks Hit by Growth Worries -- Update

By Tommy Stubbington 

Worries about slowing global growth whacked stocks in Europe on Wednesday and sent investors into the safety of government bonds, with a fresh slide in copper adding to jitters.

The moves came after the World Bank on Tuesday cut its outlook for global growth in 2015 and 2016, fanning concerns that falling energy and metals prices are a symptom of weakening demand.

Copper has now joined the rout, with prices plunging to their lowest level in more than five years, while oil prices continued to fall, with Brent crude down nearly 2% at $46.90 a barrel.

Equity markets retreated at the European open, with Tuesday's roller coaster session in the U.S. also leaving investors cautious. The Stoxx Europe 600 was down 1.3% midmorning. Mining stocks on the index plummeted 5.5%, and oil and gas companies were down more than 2%.

Antofagasta PLC, a Chilean copper miner listed in London, tumbled more than 10%. Mining giants Glencore PLC, Anglo American PLC and BHP Billiton PLC all fell sharply.

U.S. stock futures pointed to a further 0.6% decline for the S&P 500 at Wednesday's open. Changes in futures aren't necessarily reflected in market moves after the opening bell.

Cheaper oil and commodities should boost growth in the developed world over the long-term, but so far "equity markets are much more aware of the relative losers," said Kit Juckes, a macro strategist at Société Générale.

Demand for government bonds remained strong, pushing the yield on the 10-year U.S. Treasury bond to 1.85%, its lowest since May 2013. The equivalent German bond yield fell to 0.45%, close to its record low. Yields fall when prices rise.

The yen, another traditional safe harbor in times of stress, climbed to a one -month high. The dollar fell 0.8% against the Japanese currency to Yen116.54.

Markets responded with mild relief to an opinion from an adviser to the European Court of Justice on the legality of the European Central Bank's plan to intervene in bond markets to prop up weaker eurozone nations. An adviser to the ECJ said the ECB can buy large quantities of eurozone government debt to stabilize the currency area's economy, delivering a key legal endorsement for the bank as it prepares another round of stimulus measures to fight deflation.

At first glance, the ruling presents "no roadblocks" to a broader bond-buying program from the ECB, which many investors think is imminent, said Rabobank strategist Lyn Graham-Taylor.

Bonds in Italy and Spain, which are sensitive to expectations of ECB action, gained slightly following the announcement.

Write to Tommy Stubbington at [e-mail]

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