- Europe’s Economic Outlook Darkens, Sends Shudder Through Markets
by Anooja Debnath anoojad, Roxana Zega roxanazega, http://www.bloomberg.com/
* Gauge of financial risk appetite falls to lowest in 2 years
* Stocks tumble, Europe’s negative-yielding bond pile swells
Hints of investor optimism in Europe were snuffed out this week, as the darkening economic outlook registered across the continent and sent stocks and credit markets sliding.
While market turmoil at the start of this year was sparked by a selloff in commodities and Chinese stocks, the reality of Europe’s own woes hit home as companies reported dismal earnings, and policy makers and institutions lined up to cut economic forecasts and warn of further risks.
The European Commission cut its prediction for 2016 growth in the 19-nation bloc to 1.7 percent from 1.8 percent and said the largest economies of Germany, France and Italy will all perform worse than predicted just three months ago. While the European Central Bank may spur into action again, moves in the euro and stocks suggest President Mario Draghi may be losing his ability to convince investors he can anesthetize the region from risks.
“Markets had a very rough start,” said Andreas Nigg, head of equity and commodity strategy at Vontobel Asset Management in Zurich. “There’s only so much central bankers, even Draghi, can do. Each incremental dose probably has a lower impact than the previous one. The weaker-than-expected economic growth and the associated increased likelihood of a recession led to selling of risky assets.”
The blunt truth is that the euro area is still struggling to recover nearly six years after it first bailed out Greece, while European leaders are trying to tackle their latest crisis and stem the inflow of refugees.
The doom and gloom nixed a nascent stock-market recovery in Europe, with a drop of 3.6 percent in the region’s shares this week almost completely erasing the rebound from the previous two. The losses have left the Stoxx Europe 600 Index down 9.9 percent this year, its worst start since 2008. It’s trading near its lowest valuation since July relative to a gauge of global equities.