By Josie Cox
European shares dropped Thursday, pressured by a poisonous
cocktail of downbeat economic data and rekindling tensions between
Ukraine and Russia.
The Stoxx Europe 600 ended the session 0.7% lower on the day,
while the euro resumed its fall against the dollar, losing 0.1% to
trade at $1.318, after a brief spell of relief earlier in the
week.
Assets perceived to be safest at times of stress, such as German
government bonds, gold and the Swiss franc saw strong bids. Yields
on the 10-year Bund touched a new historic low of 0.86%, while the
Swiss franc climbed 0.1% against the euro and gold rose 0.6% to
$1,291.40 a troy ounce.
France's CAC and the U.K's FTSE closed the session down 0.7% and
0.4% respectively, but Germany's DAX was the weakest of all the
region's major indexes, falling 1.1% on the day burdened by
disappointing unemployment data.
Figures showing that business and consumer confidence across the
euro area deteriorated more than expected in August, further
spurred the selloff, but investors broadly cited resurgent tensions
in Eastern Europe as the predominant concern.
Ukraine on Thursday accused Russia of invading the country,
dashing any hopes of a diplomatic resolution to the crisis and
challenging the West to respond.
"There has been a steady trickle of evidence in recent days to
indicate that the situation might well be getting worse rather than
better," BNY Mellon chief market strategist Simon Derrick said,
adding that there appeared to be a substantial risk "that this
could turn into a rather more open conflict".
Others strategists and economists particularly voiced concerns
over the implications of the ripening conflict for gas and energy
markets.
Russia halted gas delivery to Ukraine in June and the European
Union is trying to mediate between both countries.
"We believe that the status quo will continue grinding on until
late autumn, with increasing costs for the Ukraine economy," Nomura
analysts wrote in a note.
Bank of America economists Vladimir Osakovskiy and Arko Sen,
meanwhile, trimmed their gross domestic product outlook for Russia
to 0.5% this year and 1.5% in 2015.
"The lingering crisis continues to weigh on the Russian economy
by further increasing borrowing costs and maintaining uncertainty,"
they wrote in a note.
Moscow's Micex index ended the session 1.7% lower on the day,
while its dollar-traded counterpart, the RTS index, declined
3.3%.
Rosneft shares were down 1.2% at close of trade, while OAO
Gazprom lost 1.3% and OAO Lukoil 0.6%. Shares in BP PLC, which owns
a nearly 20% stake in Rosneft, were off 0.6%. Brent crude was down
0.2% at $102.48 a barrel.
In the Middle East tensions remained high too, after rebel
factions in Syria on Wednesday were said to have captured a border
crossing between Syria and Israel--the latter's second loss of a
strategic site to extremist groups within days.
That also appeared to weigh on U.S. equity markets, where the
S&P 500 was trading 0.2% lower in late European trade, despite
a solid second reading on the country's second quarter gross
domestic product figures.
A first reading in July showed that U.S. GDP advanced at a
seasonally adjusted annual rate of 4.0% in the second quarter,
already marking a significant rebound from a wintry 2.1%
contraction during the first three months of the year. On Thursday
the figure was notched up to 4.2%.
Beyond the Swiss franc, the Swedish krona was the big mover in
currency markets, falling 0.2% against the euro to trade to 9.19
kronor, following disappointing retail sales for July.
Sales were forecast to have picked up 0.1% on the month, but
dropped 0.7%. The krona also hit a 14-month low against its
Norwegian counterpart.
Back in equities, French construction and road company Eiffage
SA ended the session as one of the biggest gainers after posting a
17% increase in net profit in the first half of the year and saying
it expects to boost earnings and reduce net debt in 2014.
At the other end of the spectrum, Ocado Group PLC was Thursday's
biggest loser in Europe, sliding more than 15% to 339 pence, with
traders citing a huge downgrade from brokerage firm Redburn.
Redburn analysts slashed Ocado's target price to 257 pence from
500 pence and downgraded their recommendation to sell from buy,
describing the company's technology as overvalued.
Write to Josie Cox at josie.cox@wsj.com