European stocks fell the most in two weeks after the Federal Reserve’s decision to keep rates unchanged stoked global-growth concerns and a stronger euro weighed on export-dependent companies.
Daimler and BMW dragged automakers to a 3.5 per cent drop, and Germany’s DAX Index led declines among western- European markets with a 2.8 per cent slide. The inverse correlation between the Stoxx Europe 600 Index and the single currency has reached levels not seen since 2003. The Stoxx 600 slid 1.8 per cent to 354.72 at 1:29 p.m. in London, and is heading for a 0.2 per cent weekly retreat.
The US central bank showed itself reluctant to call time on an era of record monetary stimulus amid market turmoil, rising international risks and slow inflation at home. Faltering Chinese growth and last month’s devaluation of the yuan in particular have shaken investor confidence and roiled markets. The chances for a hike in December are now seen at about 46 per cent. “Stocks are pricing in the cost of a higher euro today, with the Fed being a lot more dovish than expected,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “The stronger currency really adds to pressure on the ECB to deliver something -- either an extension or an increase of the quantitative easing program, or both. That makes the Fed decision very supportive for bunds, but it will hurt European exporters in the short-term.”
The volume of Stoxx 600 shares changing hands was 47 per cent higher than the 30-day average. A measure of European stock volatility rose 4.5 per cent. The expiration of some futures and options on stocks and indexes, known as quadruple witching, may add to market volatility today. The UK’s FTSE 100 Index earlier extended losses to 2.2 per cent, with Vodafone Group Plc and HSBC Holdings Plc among the stocks worst hit, before recovering to continue trading about 1.3 per cent lower. Among shares moving on corporate news, Deutsche Bank AG fell 3.9 per cent as a person with knowledge of the discussions said the German lender plans to close its Russian corporate banking and securities business. Abengoa SA slid 4.6 per cent after two people familiar with the matter said banks are struggling to sell the Spanish renewable energy company’s loans.
Bloomberg
