European stocks posted their biggest weekly drop since June amid concern US President Barack Obama and Congress would fail to agree on a new budget, triggering US$607 billion of automatic tax increases and spending cuts.
The STOXX Europe 600 Index dropped 2.7 percent to 262.86 this week, erasing its advance since the European Central Bank authorized an unlimited bond-buying program in September. The gauge has lost 4.3 percent since Obama won a second term on Nov. 6 amid concern that the president and Republican lawmakers will fail to avert a package of deficit-cutting measures.
“The way to play the fiscal cliff is to be very cautious in the short term,” Stewart Richardson, chief investment officer at RMG Wealth Management LLP, said on Bloomberg Television in London this week. “The day after the election we saw another bad down day in equities and that gave us a technical signal that markets were vulnerable to the downside. We have seen that movement follow through this week.”
Stocks have tumbled around the world on concern that the US fiscal cliff will push the world’s largest economy into a recession at the beginning of next year.
European stocks extended their selloff this week as Israel bombed the Gaza Strip. Hamas’ armed wing, the al-Qassam Brigades, said that it fired rockets at Jerusalem and Tel Aviv. Crude oil erased its slide this week.
National benchmark indexes fell in every Western European market except Greece and Iceland. France’s CAC 40 lost 2.4 percent, the UK’s FTSE 100 slid 2.8 percent and Germany’s DAX declined 3 percent. Spain’s IBEX 35 Index slipped 0.6 percent amid speculation the country would soon request a bailout from the EU.
A report from the EU’s statistics office on Thursday showed that the eurozone slipped back into a recession in the third quarter as governments imposed tougher austerity measures to narrow their fiscal deficits. GDP slipped 0.1 percent, its second consecutive quarter of contraction.
Separate releases showed that industrial production in the currency zone dropped the most since 2009 in September, Greece’s economy contracted for a 17th straight quarter and jobless claims rose at the fastest pace in more than a year in the UK.
More than 60 companies on the STOXX 600 were scheduled to report earnings results this week. Of those that have posted results since Oct. 9, 51 percent have exceeded analysts’ profit forecasts, according to data compiled by Bloomberg.