By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets fell on Monday
pressured by worries over a potential U.S. government shutdown,
political instability in Italy and disappointing data from
China.
"The fundamentals in the economy are improving and the political
disagreement on Capitol Hill [in the U.S.] poses a threat to that,"
said Philip Shaw, chief economist at Investec Securities.
"Markets do have the belief that politicians will find at least
a short-term solution, but as we get closer [to the deadline] that
faith gets shaken," he added.
The Stoxx Europe 600 index lost 0.6% to 310.46, trimming its
monthly gain to 4.4%. For the quarter, the benchmark rallied 8.9%,
marking the best three-month period since the third quarter of
2009.
Among country-specific indexes, Italy's FTSE MIB index was one
of the biggest decliners, off 1.2% to 17,434.86. The index,
however, ended 4.5% higher in September and closed out the third
quarter with a 14% rise.
Banks posted some of the biggest losses, with shares of
Mediobanca SpA down 2.4%, Intesa Sanpaolo SpA losing 3.5% and
UniCredit SpA off 1.3%.
The losses came after former Prime Minister Silvio Berlusconi's
party said over the weekend that all five of its ministers would
resign from the cabinet, adding to political instability.
Berlusconi said he engineered the crisis because he opposed a
planned increase in the sales tax, but Prime Minister Enrico Letta
called this a "huge lie." Berlusconi's allies threatened last week
to bring down the government if a Senate committee this week votes
to expel him from the upper house after his tax-fraud conviction.
In response to the resignations--and to avoid snap elections --
Letta has scheduled a vote of confidence for the government in
parliament on Wednesday.
"Even though the government budget deficit is near the 3% of GDP
limit and recent soft data point to an improving economic outlook,
the current political deadlock combined with expectations of
further rating downgrades and a government debt around 130% of GDP
is a toxic cocktail," analysts at Danske Bank said in a note. "We
expect markets to remain nervous until a more sustainable political
solution is found. If Berlusconi backs down or Letta wins the
confidence vote, we expect to see some spread tightening," they
added.
Uncertainty about budget negotiations in the U.S. also weighed
on sentiment in Europe on Monday. The U.S. government could face
its first shutdown in 17 years after lawmakers over the weekend
failed to agree on the budget for the new fiscal year, which starts
on Tuesday, Oct. 1. If House Republicans and Senate Democrats
cannot agree by the Tuesday morning deadline, thousands of
government employees will be unable to work.
"If this becomes a protracted affair, there's a possibility the
U.S. could default which will bring out the rating agencies ready
with their knives to chop the sovereign's rating. In fact, Moody's
reckons [fourth-quarter] GDP could be reduced as much as 1.4% if
there is a three-to-four week shutdown," said Ishaq Siddiqi, market
strategist at ETX Capital.
U.S. stocks fell sharply on Wall Street, shrugging off
better-than-expected Chicago PMI data.
Europe movers
In Europe, mining firms fell after weaker-than-expected
manufacturing data from China. The final HSBC China purchasing
managers' index for September came in at 50.2, lower than the
preliminary reading of 51.2.
Shares of Anglo American PLC fell 1.4%, Rio Tinto PLC (RIO)
dropped 1.4%, and BHP Billiton PLC (BHP) lost 1.1%. The losses
weighed on the U.K.'s FTSE 100 index , which gave up 0.8% to
6,462.22. For the month, the London benchmark settled 0.8% higher
and ended up 4% on the quarter.
Germany's DAX 30 index slid 0.8% to 8,594.40, but gained 6.1% in
September and 8% in the third quarter. France's CAC 40 index
dropped 1% to 4,143.44, paring its quarterly gain to 11% and the
monthly advance to 5.3%.
Banks weighed on the indexes, with shares of Commerzbank AG 1.9%
lower in Frankfurt, Crédit Agricole SA down 1.5% in Paris and HSBC
Holdings PLC (HBC) off 1.2% in London.
Shares of Stora Enso Oyj slid 5.4% after UBS cut the pulp and
paper manufacturer to sell from neutral. UBS said it is cautious on
the global pulp market and fears volumes are outpacing demand with
new supply entering the market in the short term.
UBS also lowered the rating on Schneider Electric SA to sell
from neutral, sending the shares 3.3% lower.
Shares of Syngenta AG lost 1.4% in Zurich after Citigroup cut
the agricultural-chemicals firm to neutral from buy.
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