European Markets Drop 2% on China Trading Halt and Devaluation

Lucy Stoeva
07 Jan, 2016
New York City

European markets dropped 2% after China let yuan drop further and faster. The euro zone unemployment fell to 10.5% in November, the lowest level in four years. Marks & Spencer said chief executive plans to retire in 2016. Jewelry retailer and maker Pandora said 2015 revenues increased 40%.

[R]4:00 PM Frankfurt – European markets dropped between 2% and 3% after China let yuan drop further and faster. The euro zone unemployment fell to 10.5% in November, the lowest level in four years. Marks & Spencer said chief executive plans to retire in 2016. Jewelry retailer and maker Pandora said 2015 revenues increased 40%.[/R]

European market indexes dropped on Thursday after China accelerated the depreciation of the yuan and oil continued to slide down.

The People''s Bank of China set the official mid-point rate on the yuan, or renminbi, at 6.6 per dollar, the lowest level in almost five years.

Investors took the decision as a signal that the Chinese economy is indeed going through a slowdown as the second largest economy struggles with the rising dollar and state controlled companies labor under heavy debt load.

Heavy losses of stocks in China triggered a trading halt, a recently established circuit breaker, for a second time this week. The authorities also disallowed major shareholders from selling more than 1% of a company''s shares within three months as of January 9.

Market losses in Europe were amplified because many exporting nations are linked to China more than the U.S. companies. Nearly 45% of exports from Germany go to China compared to about 15% of the U.S. exports.

In addition, George Soros compared the current crisis to the one in 2008 at an economic forum in Sri Lanka.

“I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008,” Soros said.

The continuous slide of oil prices also dampened investors’ sentiment. Brent crude oil slumped 3.4% to $33.06 a barrel, the lowest level in 12 years.

Among oil stocks, shares of Tullow Oil fell 5.1% and BP dropped 4.8%.

Mining stocks were among the leading losers as China generates a substantial part of the world demand for metal ores. Shares of Anglo American plunged 10.2%, Glencore erased 6.8%, BHP Billiton declined 6.1%, and Antofagasta fell 5.8%.

On the positive side, the euro zone unemployment rate dropped to 10.5% in November, its lowest level in more than four years, while economic sentiment increased to 106.8 points in December, according to a poll of the European Commission.

In London, FTSE 100 index fell 158.26, or 2.61%, to 5,915.12 and in Frankfurt the DAX index dropped 330.52, or 3.24%, to 9,883.50.

In Paris, CAC 40 index plunged 113, or 2.52%, to 4,367.47.

Apple’s suppliers Dialog Semiconductor Plc fell 8.8%, AMS AG declined 5.1%, and ARM Holdings Plc fell 1.8% after Nikkei reported that the gadget maker may significantly decrease iPhone 6S and 6S Plus production.

Shares of BMW fell over 4.6% to €84.6 on the worries that the slowdown in Chinese economy may harm the export-oriented auto maker.

Daimler AG], the owner of Mercedes-Benz and another big exporter to China, fell 4.1% to €68.72 despite reporting rising sales in December from the year ago month.

Marks & Spencer Group PLC declined 1.1% to 434 pence after the food and apparel retailer announced that its Chief Executive Marc Bolland will retire in 2016.

On the positive side, Pandora jumped 3.3% to 889 Danish kronen after the jewelry maker and retailer reported revenues increased 40% in 2015 revenues and announced new store opening plan.

Randgold Resources jumped 1.8% to 4,407 pence after the price of gold hit a nine-week high and the gold miner benefited from the flight to safety of investors.

Volkswagen AG tumbled 6.2% to €122.25 after the German newspaper Sueddeutsche Zeitung reported that the auto maker may have to buy back 115,000 cars in the U.S. due to the emissions scandal.