Stocks in Europe, Asia Follow Wall Street Lower on Tax Uncertainty

By Riva Gold and Lucy Craymer Features Dow Jones Newswires

Dollar, stocks struggle on tax uncertainty

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-- Brexit summit in focus

-- European equity funds post biggest redemptions in a year

Stocks in Europe and Asia moved lower Friday as growing uncertainty around a potential U.S. tax overhaul dulled investors' enthusiasm.

The Stoxx Europe 600 edged down 0.3% in the early minutes of trading after a soft finish on Wall Street, echoing a downbeat session in Asia. Futures suggested the S&P 500 would open higher, however, with a gain of 0.1%.

U.S. stocks edged slightly lower on Thursday and the dollar remained under modest pressure Friday after signs Republicans could have trouble reconciling key items in their tax proposal. Several Republican senators, including Marco Rubio, expressed last-minute doubts about the tax-overhaul plan in Congress before a compromise plan set to be released on Friday and final votes planned for early next week.

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"It appears as though jitters about U.S. tax reform have weighed on sentiment," strategists at RBC Capital Markets wrote in a note Friday.

Expectations for a reduction in corporate taxes have contributed to the recent climb in U.S. stocks, analysts say, adding to a global stock rally fueled by an improving economic backdrop around the world and still gentle monetary policy.

In Europe, some companies that generate a good chunk of their sales in the U.S. would also stand to benefit from a U.S. tax cut, according to European equity strategists at Deutsche Bank.

In corporate news, shares of Swedish fashion retailer Hennes & Mauritz fell 13%, leading European stocks lower on Friday, after it reported falling sales in the fourth quarter. Shares of Airbus were also off 0.3% after the plane maker confirmed that Chief Executive Tom Enders would depart in 2019 and the company's No. 2, Fabrice Brégier, would leave next year.

Investors redeemed the most from European equity funds in over a year in the week through Wednesday, according to fund-tracker EPFR Global. Italian equity funds posted outflows for the sixth time in the past seven weeks amid concerns about a potential Italian general election in March, and Italy's FTSE MIB index led declines in Europe Friday with a fall of 0.7%, but the index is still up 15% this year, compared with just a 7.6% gain for the wider Stoxx Europe 600 index.

Yields on 10-year Italian government bonds last traded at 1.783%, up from around 1.668% at the start of the week. German 10-year yields fell to 0.293% Friday from 0.317% late Thursday. Yields move inversely to prices.

In currencies, the British pound was steady Friday as European leaders at a summit in Brussels were set to approve a hard-won divorce deal with the U.K. that opens the door to trade talks. The WSJ Dollar Index, which tracks the dollar against a basket of 16 others, was down 0.2%.

Stock markets in Asia were mostly lower after modest declines in the U.S. and Europe Thursday.

Japan's Nikkei finished down 0.6%, logging a fourth-straight decline, as the yen firmed against the U.S. dollar. That came even as data showed business confidence among Japan's large manufacturers reached an 11-year high in the October-December quarter.

In Hong Kong, locally-listed Chinese financial stocks--which have been among the market's strongest performers this year--continued their recent declines. The Hang Seng was down 1.1%. Shanghai stocks fell 0.8%.

Equities in India got a lift from exit polls suggesting the ruling Bharatiya Janata Party will remain in power in Gujarat state and unseat the opposition in Himachal Pradesh. The Sensex was recently up 0.8%.

South Korea's stock benchmark rebounded after sharp end-of-session losses a day earlier and was up 0.5%. On Thursday, the index in the last 90 minutes of trading went from a 1.4% gain to finishing down 0.4%. The fall was attributed to the quarterly expiration of index options and futures, which sometimes results in heavy trading as institutional investors unwind or rollover positions.

"The amount [of long-arb positions] was a lot more than people expected. There was no one left to buy the stocks," said SooMyung Kim, an equities-derivatives analyst at Samsung Securities.

Anant Kala, Robert Wall and Kenan Machado contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Lucy Craymer at Lucy.Craymer@wsj.com

(END) Dow Jones Newswires

December 15, 2017 03:57 ET (08:57 GMT)