LONDON: Stock markets slumped on Monday, extending a pre-weekend drop that followed a Fed-inspired rally, while a crash in the share price of Deutsche Bank offset a surge in German business confidence.
After last week’s burst of enthusiasm on the back of the US central bank’s decision to keep interest rates on hold for a little longer, stocks fell back into the red Friday before accelerating losses across Europe and Asia on Monday.
“It’s been a rough start to the week for European equity markets and this seems likely to set the pace when trade on Wall Street gets underway,” said ADS Securities London analyst Paul Webb.
He noted however that “significantly better-than-expected business sentiment data out of Germany” had lifted the euro.
Around 1030 GMT, London’s benchmark FTSE 100 index was down 1.0 percent compared with the close on Friday.
In the eurozone, Frankfurt’s DAX 30 slid 1.4 percent and the Paris CAC 40 shed 1.5 percent.
The euro jumped to $1.1246. A strong yen meanwhile knocked the stuffing out of Tokyo’s main Nikkei stocks index, which ended down 1.25 percent. Hong Kong’s Hang Seng index retreated 1.6 percent.
In Europe, German business confidence soared to its highest level in more than two years in September, the Ifo economic institute said, recovering from a post-Brexit slump and signaling a rosier outlook for Europe’s largest economy.
The closely-watched index unexpectedly jumped to 109.5 points from 106.3 points in August to reach its highest reading since May 2014, the Munich-based Ifo said.
“The German economy is expecting a golden autumn,” Ifo president Clemens Fuest said in a statement. But shares in Deutsche Bank plunged 5.9 percent to 10.74 euros.
“Weekend reports that German Chancellor Angela Merkel had ruled out the prospect of any form of state aid in the event that Deutsche Bank’s problems become more acute have hit the share price hard,” said Michael Hewson, chief market analyst at CMC Markets UK.
US authorities are targeting Deutsche Bank for a record $14-billion fine (12.5 billion euros), marking the latest blow for a company which since the 2008 financial crisis has run a gauntlet of setbacks.
“While the eventual fine may not be anywhere near that much, the litany of legal problems has raised concerns about the health of one of Europe’s largest lenders and any contagion effect to the rest of Europe’s sickly banking sector,” Hewson added in a client note.