Caution Reigns in Europe as Stocks Drop With Defensive Shift

(Bloomberg) -- European equities tumbled on Wednesday as investors turned defensive amid concerns ranging from slowdown in demand for luxury fashion products and microchips to the sustainability of Italy’s debt.

The Stoxx Europe 600 Index dropped 1.6 percent to its lowest closing level in six months, led by declines in technology, chemicals and personal goods. Telecoms, one of the biggest underperformers over the past year, bucked the trend, gaining 1.9 percent as the stocks’ cheap valuations began to draw bargain hunters.

Caution continues to dominate European equities as Italy’s aggressive budget stirs concerns over the nation’s debt. Populist leaders maintained on Wednesday they’ll implement costly election promises even as the country’s sovereign yield spreads widen.

“I think markets will closely follow the outcome of today’s talks with the new coalition in Rome,” said Ulrich Urbahn, head of multi-asset strategy and research at Joh Berenberg Gossler & Co. KG in Frankfurt. “The markets are also still eagerly awaiting the reporting season.”

Caution Reigns in Europe as Stocks Drop With Defensive Shift

Shares in luxury product companies from LVMH to Kering SA and Salvatore Ferragamo SpA plummeted, as investors’ worries over a crackdown at Chinese borders on undeclared imports were confirmed Wednesday when LVMH said the country is stepping up border checks on returning travelers.

Semiconductor stocks dropped after VAT Group, which makes vacuum products for the industry, signaled further weakness. Miners also sank along with base metals. Chemicals dropped for a fifth day after PPG’s profit warning. Suppliers led declines in the auto sector after losses in U.S. peers.

©2018 Bloomberg L.P.