UKX FTSE 100 Index

By Mark DeCambre, MarketWatch

Stoxx 600 moves back into negative territory for 2018

European stocks got knocked sharply lower on Friday as worries about spillover effects from an escalating financial crisis in Turkey hit eurozone equity bourses and its currency.

What are markets doing?

The Stoxx Europe 600 was down 1% to 385.86, after finishing Thursday's session with a 0.1% gain (http://www.marketwatch.com/story/european-stocks-weaker-across-the-board-adidas-shares-climb-on-results-2018-08-09). With the move, the pan-European gauge is now on pace for a weekly slide. It's trading down about 0.5% for the week, pushing the benchmark back into negative territory for the year.

Germany's DAX 30 ramped up losses to nearly 2%, trading at 12,434.78, after booking a 0.3% gain to 12,676.11 Thursday. The index was looking at weekly decline of 1.4%.

Meanwhile, France's CAC 40 fell by 1.5% to 5,421.36, after ending the previous session little changed at 5,502.25. The French equity benchmark is set for a weekly fall of about 1.6%,The U.K.'s FTSE 100 slid 0.9% to 7,675.63, after falling by a similar amount on Thursday, but is clinging to a 0.2% weekly return.

Meanwhile, the FTSE MIB Italy index declined by 2.5% to 21,106.42, after declining by 0.7% on Thursday. For the week, the gauge is on track for a 2.2% fall, while Spain's IBEX 35 retreated by 1.7% at 9,593, after falling by 0.8% the day before. The IBEX also is on pace for a 1.5% decline.

The euro edged down 0.9% to $1.1462, compared with $1.1610 late Thursday in New York. The British pound slumped 0.7% to $1.2736.

What's driving the market?

The tumble for European stocks comes after a report from the Financial Times (https://www.ft.com/content/51311230-9be7-11e8-9702-5946bae86e6d) (paywall) said that the European Central Bank has grown increasingly concerned about potential contagion from Turkey's problems, especially in the banking sector. An address by Turkish President Recep Tayyip Erdogan appeared to worsen woes for the lira with a speech Friday.

The news sparked a risk-off atmosphere in EU markets, with Germany, the largest member of the EU, seeing its stock benchmark among the more severe declines, and southern European countries, Spain and Italy, viewed as among the smaller and more vulnerable to eurozone worries, sliding sharply as well.

The lira , which has been consistently hovering around an all-time low against the U.S. dollar this summer, fell to a fresh nadir (http://www.marketwatch.com/story/dollar-index-jumps-to-around-one-year-high-as-turkeys-lira-gets-rocked-2018-08-10) and European currencies were also dealt a blow as investors rush into U.S. dollars.

According to FactSet data, Turkey's lira is down 28% this week, bringing its year-to-date decline to more than 35%.

The euro was down sharply against the dollar, with one buck changing hands at $1.1422 compared with $1.1526 late Thursday in New York, while the British pound also took a hit against greenback. Sterling last bought $1.2736, versus $1.2824 Thursday.

What are strategists saying?

"For some time now investors have been looking at the unfolding currency crisis in Turkey as a local difficulty, however the accelerating speed of the declines appears to be raising concerns about European banks exposure to the Turkish banking system," said Michael Hewson, chief market analyst at CMC Markets UK.

There are "reports that the European Central Bank is concerned that some banks in France, Italy and Spain may not be fully hedged against the precipitous falls in the Turkish Lira through their exposure to the Turkish banking system, has seen the euro fall sharply," Hewson said. "If these Turkish banks start defaulting on their foreign currency loans to these banks in Europe, with Spain's banks reportedly having the largest exposure, according to the Bank of International Settlements."

"European shares lead global stock markets increasingly lower and Wall Street futures are far enough into the red to indicate no comeback by U.S. indices by cash open," said Ken Odeluga, market analyst at City Index.

"Once again, investors show they perceive a too-strong dollar to be the key medium of harm from increasing trade restrictions and other geopolitical tensions. Anxiety from fresh U.S. sanctions on Russia rises as the rouble spirals lower still, whilst Turkey's lira offers no solace after an alarming 10% downward spike to its latest nadir," he said.

Stocks in focus

Weighing on the German index, shares of Deutsche Bank AG (DBK.XE) (DBK.XE) tumbled over 5% after a downgrade to underweight by analysts at Morgan Stanley.,

Shares of Spain's BBVA SA (BBVA.MC) (BBVA.MC) slumped 5.5%, Italy's Unicredit SpA (UCG.MI) gave up 5% and France's BNP Paribas SA (BNP.FR) shed 4.3%. The banks are among the biggest lenders to Turkey and have come under closer scrutiny by the Single Supervisory Mechanism, the ECB's arm charged with monitoring the region's banks, according the FT report.

Novozymes A/S (NZYM-B.KO) was down 2.9% following the release of second-quarter results from the Danish biotech firm.

(END) Dow Jones Newswires

August 10, 2018 10:03 ET (14:03 GMT)

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