European stocks posted the biggest weekly slide in 13 months as US Federal Reserve Chairman Ben Bernanke said the central bank might pare bond purchases, Greek wrangling threatened to fracture the government and China’s cash crunch worsened.
The benchmark STOXX Europe 600 Index fell 3.7 percent to 280.4 this week as all 19 industry groups dropped. The gauge has declined for five straight weeks, the longest streak of losses since June 2011. It has retreated 9.7 percent since May 22 after Bernanke said the Fed could start to reduce quantitative easing (QE) if the US economy improves sustainably.
“The market was facing the cold turkey of less QE steroids and the result was a panic attack,” said Lorne Baring, managing director of B Capital SA in Geneva. “The result will be investors pushed back to looking at equity fundamentals instead of the central bank QE programs, which have been distorting markets.”
The VSTOXX Index, which measures the cost of using options to hedge against swings in the Euro STOXX 50, rallied 13 percent to 24.05, the highest since February.
In China, benchmark money-market rates climbed to records this week as the People’s Bank of China refrained from using reverse-repurchase agreements to address a cash crunch. The seven-day repurchase rate rose 2.7 percentage points to 10.77 percent, the highest in data going back to March 2003.
As interbank borrowing costs surged, a report showed China’s manufacturing shrank at a faster pace this month. The preliminary reading of 48.3 for a purchasing managers’ index released by HSBC Holdings PLC and Markit Economics compared with the 49.1 median estimate in a Bloomberg survey of economists.
Greek Prime Minister Antonis Samaras lost one of his two coalition partners as the Democratic Left party’s ministers quit over his closure of state broadcaster ERT, sparking concern about the government’s stability. Without the Democratic Left’s 14 lawmakers, the alliance between Samaras’ New Democracy and the Socialist Pasok party would control just 153 seats in the 300-seat parliament.
“It feels like everyone is packing up everything they can,” said Luis Benguerel, a trader at Interbrokers in Barcelona. “People just want out. We’ve spent years patching up holes in China rather than reforming that economy. One day it will just blow up. And the last thing we need is a resumption of the sovereign risk in Europe.”
National benchmark indices fell in all of the 18 western European markets this week, except Iceland. The UK’s FTSE 100 fell 3.1 percent, France’s CAC 40 lost 3.9 percent, Germany’s DAX declined 4.2 percent and Greece’s ASE plunged 9.7 percent.