Euro jumps to 3-year high against dollar
European stocks broke a four-session winning streak on Wednesday, yanked lower by a rally in the euro after U.S. Treasury Secretary Steven Mnuchin cheered the recent slide in the dollar.
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Utility companies were among biggest decliners after a profit warning from industry major Suez SA.
What are markets doing?
The Stoxx Europe 600 index ended down 0.5% at 400.79, falling from its highest close since August 2015 reached on Tuesday.
Germany's DAX 30 index fell 1.1% to 13,414.74, losing a grip on its record close from Tuesday. France's CAC 40 index dropped 0.7% to 5,495.16, while the U.K.'s FTSE 100 index lost 1.1% to 7,643.43 (http://www.marketwatch.com/story/ftse-100-slides-to-6-day-low-as-pound-breaks-above-140-2018-01-24).
The euro climbed to $1.2390 from $1.2298 late Tuesday in New York. The pound jumped to $1.4209 from $1.4000 on Tuesday.
What's driving the market?
The losses across Europe came as traders weighed up strong economic data against a rallying euro and a profit warning from French utility major Suez.
The flash purchasing managers' indexes for the eurozone painted a surprisingly strong picture of the region in January, with the composite reading climbing to 58.6 from 58.1 in December. Analysts had expected a pullback to 58.0. The January reading signals growth at the fastest rate since June 2006, along with the largest payroll gain since 2000.
Higher wages are likely to push up inflation and strengthen the case for the European Central Bank to end its aggressive asset purchase program and start hiking interest rates. The euro has risen recently on expectations the ECB will turn more hawkish and end its QE program for good in September. Traders are eager to get more hints on the future of monetary policy at the ECB's meeting on Thursday.
Read:5 key question for the ECB as hawkish noises start to emerge (http://www.marketwatch.com/story/5-key-question-for-the-ecb-as-hawkish-noises-start-to-emerge-2018-01-23)
The euro and pound were also boosted by comments from U.S. Treasury Secretary Mnuchin (http://www.marketwatch.com/story/dollar-plunges-to-3-year-low-after-mnuchin-cheers-weaker-greenback-2018-01-24) that he isn't too worried about the recent dollar slide. Speaking at the World Economic Forum in Davos, he said a weaker greenback "is good for us as it relates to trade and opportunities," breaking with the usual U.S. strong dollar mantra.
See:Don't be so surprised by Mnuchin's endorsement of a weak dollar (http://www.marketwatch.com/story/dont-be-so-surprised-by-mnuchins-endorsement-of-a-weak-dollar-2018-01-24)
A stronger currency tends to weigh on the region's stock markets as it's likely to hit exporters and feared to slow the economic recovery.
What are strategists saying?
"The region has benefited from the improved global economic environment and a weaker euro and the latter could be a challenge for it over the course of this year," said Craig Erlam, senior market analyst Oanda, in a note.
"The ECB is going to be very aware of this, but will also be under pressure to remove further monetary support even as it brings an end to new bond purchases later this year. Traders are clearly already anticipating further tightening measures including at least one rate hike in 2019, which may be much earlier than many expected a year or two ago," he added.
"Europe's de facto benchmark was slipping after the one of the first major profit warnings of Europe's earnings season, from French conglomerate/utility Suez. That stemmed modestly positive stock sentiment from earlier in the session," said Ken Odeluga, market analyst at City Index, in a note.
"The balance of corporate results will almost inevitably be positive during the earnings season though. Switzerland's Novartis's was an example on Wednesday, raising profit guidance after beating consensus," he added.
Which stocks are in focus?
Suez SA (SEV.FR) tanked 17%, suffering its biggest one-day percentage loss ever after the French water utility cut its 2017 earnings target, partly due to political turmoil in Catalonia in Spain.
The profit warning also served as a timely reminder of the challenges facing the industry, sending shares of other utility companies lower too. Veolia Environnement SA (VIE.FR) lost 3.8% even after the company confirmed its profit guidance (http://www.marketwatch.com/story/veolia-confirms-guidance-after-suez-profit-warning-2018-01-24), while E.ON SE (EONGY) fell 3%.
Novartis AG (NOVN.EB) (NOVN.EB) rose 2.8% after the Swiss drugmaker said its fourth-quarter profit was boosted by strong sales of newer drugs (http://www.marketwatch.com/story/strong-sales-of-newer-drugs-boost-novartis-results-2018-01-24).
Fresnillo PLC (FRES.LN) put on 3.7% after the miner said fourth-quarter silver production rose 20% (http://www.marketwatch.com/story/fresnillo-silver-production-up-20-2018-01-24).
Sage Group PLC (SGE.LN) slumped 6.5% after a strong rise in sales still missed analyst forecasts (http://www.marketwatch.com/story/sage-group-backs-guidance-after-revenue-rises-63-2018-01-24).
(END) Dow Jones Newswires
January 24, 2018 11:58 ET (16:58 GMT)
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