By Carla Mozee, MarketWatch
LONDON (MarketWatch) -- European stocks dropped Friday, as an
escalation of violence in Iraq sent energy prices soaring, while
investors assessed comments from Bank of England Governor Mark
Carney on the next rate hike.
The Stoxx Europe 600 fell 0.8% to 345.08, but oil producers were
among the top advancers, with Repsol SA gaining 1%, Royal Dutch
Shell PLC up 0.9% and Total SA higher by 0.8%.
Crude-oil prices surged on concerns that unrest in Iraq could
lead to disruptions in the country's oil supplies. Islamist
militants have reportedly taken full control of the northern oil
city of Kirkuk and vowed to march to Baghdad. Iraq is the
second-largest oil producer in the Organization of the Petroleum
Exporting Countries. But on Friday, the International Energy Agency
said supplies in the country aren't at immediate risk.
Crude-oil futures (CLN4) pushed higher than $107 a barrel, and
August Brent traded above $112 a barrel. The U.S. crude benchmark
on Thursday settled at its highest level in nearly nine months.
As oil prices jumped, shares of air carriers EasyJet PLC and
Ryanair Holdings PLC fell 4.1% and 3.3%, respectively. Retail
shares were also pulled lower, with Germany's Metro AG losing 0.9%,
Sweden's Hennes & Mauritz AB off 0.5% and Swiss luxury-goods
company Cie. Financière Richemont SA lower by 1.6%.
The spike in oil prices come at a time of sluggish economic
growth in Europe, which the European Central Bank plans to tackle
with recently launched measures aimed at encouraging lending by
banks and spending by consumers.
In Germany, the DAX 30 index fell 0.9% to 9,847.38, and France's
CAC 40 index lost 0.9% to 4,511.70.
Meanwhile, U.K. stocks were hit by the prospect of higher
interest rates. The U.K.'s FTSE 100 index dropped 1.1% to 6,769.54
after BOE chief Carney said an interest-rate increase may come
sooner than the markets currently anticipate. "Growth has been much
stronger, and unemployment has fallen much faster than either we or
anyone else expected," a year ago, Carney said late Thursday in a
speech at Mansion House in London.
Markets had been pricing in a rate hike in around the second
quarter of 2015, but two-year swap rates have risen more than 15
basis points on Thursday's level, said Berenberg in a note
Friday.
"We expect the first hike in November 2014. The change in tone
was sensible, in our view. Record low interest rates are
increasingly unnecessary," wrote Rob Wood, chief U.K. economist at
Berenberg.
Also speaking at Mansion House, Britain's finance minister
George Osborne said Thursday he would give the central bank greater
power to curb mortgage lending, in a bid to reduce any risks from
the housing market to financial stability.
Shares of British residential property firm Barratt Developments
PLC fell 5.8% and Persimmon PLC lost 6.1% and Berkeley Group
Holdings PLC fell 5.5%.
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