By Josie Cox
European equities suffered yet another beating Wednesday amid
swelling fears about the global economic recovery in the aftermath
of the International Monetary Fund slashing its growth outlook,
with a particularly dreary view for Europe.
The Stoxx Europe 600--having already slumped on Tuesday
following poor German economic data--closed 0.9% lower, while
Germany's DAX 30, France's CAC 40 and the U.K's FTSE 100 all
weakened.
In the U.S., equity indexes had deepened their recent losses in
early trade.
"The mood is darkening rapidly" in global equities, said Kit
Juckes, a macro strategist at Société Générale.
U.S. government debt--a typical retreat in times of
stress--remained in demand, with 10-year U.S. Treasury yields,
which fall as bond prices rise, steady at 2.34%. Later in the
session, the Federal Open Market Committee is due to publish
minutes from its latest meeting, which could shed more light on the
central bank's planned timing for an interest rate hike.
On Tuesday, the IMF downgraded its outlook for global economic
growth, saying it now expects the world's economy to grow by 3.8%
next year, down from its July forecast of 4%, citing persistent
weakness in the eurozone and a broad slowdown in several major
emerging markets.
It specifically marked down prospects in the eurozone's three
largest economies--Germany, France and Italy--and warned that the
probability of the eurozone re-entering a recession in the next six
months has roughly doubled since the IMF's April outlook to
38%.
"Overall, the report breaths a certain desperation about the
state of the world economy," said Karl Steiner, a strategist at
SEB.
Gary Jenkins, a credit strategist at LNG Capital, said that by
trimming its outlook, the IMF's agenda might be to persuade the
European Central Bank to resort to outright quantitative
easing.
"When European politicians look at growth and employment figures
in the U.S. and the U.K. they probably wonder why the eurozone
isn't applying the same medicine of QE," Mr. Jenkins said.
A rally in the dollar paused Tuesday but has now resumed, with
the euro and yen edging lower.
The Russian ruble hit fresh lows against major currencies
despite the deployment of hundreds of millions of dollars by
Russia's central bank of its foreign-exchange reserves to stem the
decline.
Back in equity markets, Sierra Leone iron ore producer London
Mining PLC was the stand out loser, with its shares sinking to
around 1p, after the company warned that there could be "little or
no value remaining in the equity" as it struggles to cope with weak
iron ore prices and the Ebola outbreak.
"This looks like the end of the road for London Mining unless a
new investor charges to the rescue," analysts at Numis, a
brokerage, wrote in a note to clients.
Write to Josie Cox at josie.cox@wsj.com and Tommy Stubbington at
tommy.stubbington@wsj.com
