Surprise US debt downgrade knocks European stocks to two-week lows (updated)

Telefonica Deutschland Holding AG

02/08/2023 09:59

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      STOXX 600 off 1.4%Fitch US downgrade sparks risk-off mood
    

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      Siemens Healthineers tumbles on profit drop
    

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      JDE Peet's down on cutting profit target 
    

  
 (Updated at 1600 GMT)
    By Sruthi Shankar and Shristi  Achar A
       Aug 2 (Reuters) - European shares tumbled to two-week
lows on Wednesday, with broad-based losses as investors fled
riskier assets after a surprise downgrade of the U.S. credit
rating by Fitch. 
    The pan-European STOXX 600 index  .STOXX  fell 1.4%,
touching its lowest level since July 18 and extending declines
to the second straight day.
    Rating agency Fitch on Tuesday downgraded U.S. debt rating,
saying expected fiscal deterioration over the next three years
and repeated down-to-the-wire debt ceiling negotiations threaten
the government's ability to pay its bills.
    The downgrade roiled global stock markets and drove euro
zone bond yields lower as investors sought the relatively safety
of sovereign debt.
        The EURO STOXX volatility index  .V2TX  also hit a
nine-week high, reflecting investor anxiety.
  
        "The downgrade appears to have prompted further profit
taking on the back of the weakness that started yesterday, due
to concerns over weaker economic data, and the earnings
outlook," said Michael Hewson, chief market analyst at CMC
Markets. 
  
    Hopes of an end to the market-punishing interest rate hikes
from major central banks had pushed European stock markets to
multi-year highs earlier this week, though data highlighting
faltering global growth pressured equities on Tuesday.
    "Most people are saying earnings are doing well, markets are
doing well but we do expect a slowdown to come at some point,
particularly in the U.S. where valuations are quite expensive.
So we will be sensitive to any potential negative newsflow,"
said Caroline Simmons, UK chief investment officer at UBS Global
Wealth Management.
        The German DAX  .GDAXI , however, pulled back from
record highs on Tuesday after weak factory activity data from
across the globe raised concerns of an economic slowdown.
    Among single stocks, Telefonica Deutschland  O2Dn.DE  tanked
17.9% to its lowest since March 2020 with traders linking the
move to rival Vodafone  VOD.L  announcing a roaming deal with
1&1 in Germany. 
    U.S.-German medical device maker Siemens Healthineers
 SHLG.DE  dropped 5.6% after posting an unexpected drop in
quarterly operating profit.
    JDE Peet's NV  JDEP.AS  slid 1.9% as one of the world's
largest coffee companies lowered its annual earnings target. 
    German fashion house Hugo Boss  BOSSn.DE  slipped 1.9% even
as it raised its full-year outlook.
    Nearly all major STOXX 600 sectors were lower, with retail
stocks  .SXRP  and miners  .SXPP  down 2.6% and 2.7%
respectively.
    The aerospace and defence index  .SXPARO  was a bright spot,
up 0.5%, boosted by a 6.4% rise in BAE Systems BAES.L  after the
British defence firm upgraded its 2023 earnings forecast.

 (Reporting by Sruthi Shankar, Amruta Khandekar and Shristi
Achar A in Bengaluru; Editing by Sherry Jacob-Phillips, Dhanya
Ann Thoppil and David Gregorio)
 ((sruthi.shankar@thomsonreuters.com; within U.S. +1 646 223
8780; outside U.S. +91 80 6182 2787;))