Sliding banks put an end to European stocks’ winning streak

The German share price index DAX graph at the stock exchange in Frankfurt
FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 16, 2020. REUTERS/Staff

September 17, 2020

By Sruthi Shankar

(Reuters) – European shares broke a four-day winning run on Thursday, with banks reeling from the prospect of near-zero interest rates for a prolonged period, while a technology stock sell-off continued on Wall Street, piling pressure on European tech shares.

The pan-European STOXX 600 <.STOXX> finished 0.5% lower, easing from a one-month closing high hit in the previous session, while the German DAX <.GDAXI> slipped 0.4% and France’s CAC 40 <.FCHI> dropped 0.7%.

UK’s FTSE 100 <.FTSE>, dominated by global companies that bring offshore revenue home, took comfort as the pound slumped after the Bank of England said it was looking more closely at how it might cut interest rates below zero.

The blue-chip index, however, closed 0.5% lower, with major banks like HSBC <HSBA.L>, Barclays <BARC.L> and Standard Chartered <STAN.L> falling about 2%.

The broader European banking index <.SX7P> – the worst performing sector with a 38% decline this year – dropped 1.6%.

“Given the margin-crushing powers of zero-interest-rate and Quantitative Easing policies, it is no wonder bank shares are performing terribly,” Russ Mould, investment Director at AJ Bell wrote in a note.

BoE’s policy decision followed the U.S. Federal Reserve, which pledged to keep borrowing costs lower for as long as the U.S. economy needs to recover from the coronavirus crisis.

However, investors were unsettled by the lack of new stimulus measures, and Fed Chair Jerome Powell said an economic recovery is expected to slow, requiring continued support from further government spending.

The World Bank’s chief economist Carmen Reinhart said the global economic recovery from a pandemic-induced recession may take as much as five years.

Tech stocks continued to weigh on Wall Street, while in Europe, they <.SX8P> shed 1.0%.

Property group Unibail-Rodamco-Westfield <URW.AS> slumped 10% to the bottom of the STOXX 600 after announcing plans to raise 3.5 billion euros ($4.1 billion).

Among the bright spots, Delivery Hero <DHER.DE> rose 2.4% after the food delivery group said it would buy the Latin American operations of Glovo for up to 230 million euros. It also launched operations in Japan.

Britain’s Next <NXT.L> rose 4.1% after it raised its profit outlook for the second time in two months, becoming the latest retailer to report strong results this week.

Despite Thursday’s declines, the encouraging updates from fashion retailers, buoyant M&A activity and increasing hopes for a coronavirus vaccine kept the STOXX 600 on course for weekly gains.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D’Silva and Jane Merriman)