Santander may be hurt by Carillion's collapse, says report
European stocks pulled lower Monday, weighed as the euro continued to march up further into 3-year highs, putting the regional benchmark at risk to fall for the third session in four.
Investors were also watching for developments from the U.K., where construction and outsourcing heavyweight Carillion PLC has collapsed.
How markets are moving
The Stoxx Europe 600 index fell 0.2% to 397.86, led by tech and health care shares. But the industrial and basic materials groups topped advancing sectors. On Friday, the index rose 0.3% (http://www.marketwatch.com/story/european-stocks-edge-up-with-fiat-gaining-but-euro-jumps-on-german-progress-2018-01-12) and that move allowed it to end last week higher by 0.3%.
In Frankfurt on Monday, the DAX 30 index lost 0.2% at 13,215.35, and France's CAC 40 gave up 0.2% at 5,504.79.
Spain's IBEX 35 was fractionally higher at 10,466.90. The U.K.'s FTSE 100 index was off 0.1% at 7,773.41 (http://www.marketwatch.com/story/ftse-100-steps-back-from-record-with-carillion-collapse-in-focus-2018-01-15) after Friday's record closing high.
The euro bought $1.2263, rising from 1.2200 late Friday in New York.
What's driving markets
Most European benchmark were stuck in the red while the euro headed toward $1.2300, a level that hasn't been seen since December 2014, according to FactSet data. A stronger euro can make products produced by European exporters more expensive for their overseas customers to purchase.
The euro began its leap last week after minutes from the European Central Bank's meeting in December suggested the bank may take a more hawkish stance on its monetary policy.
While rate-hike speculation has ramped up, Bundesbank President Jens Weidmann, who tends to be on the hawkish side of ECB policy, said "imminent risk of a change is small for the moment," a Reuters report (https://uk.reuters.com/article/uk-ecb-policy-weidmann/ecbs-weidmann-plays-down-risk-of-imminent-rate-hike-idUKKBN1F122F?il=0) quoted him as saying in Germany late Friday. The ECB will next meet on Jan. 25.
Also kicking off Monday trade was news that British construction company Carillion (CLLN.LN) will enter liquidation after crisis talks failed over the weekend (http://www.marketwatch.com/story/carillion-to-go-into-liquidation-after-talks-fail-2018-01-15). The construction company, which also runs public services at prisons, hospitals and schools, couldn't work out a deal with the government and its creditors. Carillion employs 20,000 in the U.K. and uses thousands of subcontractors. Its shares have been halted.
What strategists are saying
"The ECB's [minutes] was indeed upbeat but was also clear that inflation continued to undershoot, and that is was committed to the sequence of finishing asset purchases and then, after some time, lifting rates," said currency strategists at Brown Brothers Harriman in a Monday note.
"If anything, the strong euro will dampen inflation pressures and squeeze earnings. Anglo-American companies are more likely to pass along currency developments to customers, while Continental and Japanese businesses appear to put more emphasis on market share than short-term profitability are less likely," they said. "The euro's 2.5% appreciation on a trade-weighted basis is tantamount to a 40 basis points tightening of monetary policy."
Metso Oyj (METSO.HE) fell 8.8% as the Finnish engineering group warned that fourth-quarter 2017 profitability of its minerals segment will be weaker than expected, "due to a higher-than-estimated share of equipment sales compared to services sales and a weak margin of the services business." Metso said overall fourth-quarter sales are set to rise 5% from a year ago, to EUR710 million.
Shares in Carillion's rivals were mixed. G4S PLC (GFS.LN) rose 1.5% while Balfour Beatty PLC (BBY.LN) turned lower, losing 0.8%. Meanwhile, Banco Santander PLC (SAN) was off 0.1%. The Spanish lender is set to be hurt by Carillion's collapse as Santander's U.K. branch is one of the company's principal creditor (Santander%e2%80%99s%20U.K.%20branch%20is%20one%20of%20the%20company%e2%80%99s%20principal%20creditor.), business daily Expansion reported, citing unnamed sources in the sector.
GKN (GKN.LN) rose 4.1%, at the top of the Stoxx 600, after reports that U.S.-based private equity firm Carlyle is considering a bid for the U.K. engineering group. Meanwhile, Melrose Industries PLC (MRO.LN) , whose takeover bid was recently rejected by GKN, said Monday it will start holding a series of meetings with shareholders to discuss the proposal. Melrose shares flipped up to trade 1.1% higher.
(END) Dow Jones Newswires
January 15, 2018 05:46 ET (10:46 GMT)