European stocks falter as Brexit worries weigh

Traders work at their desks in front of the German share price index, the DAX board, at the stock exchange in Frankfurt, July 19, 2016.
Traders work at their desks in front of the German share price index, the DAX board, at the stock exchange in Frankfurt, July 19, 2016. PHOTO: REUTERS

LONDON (AFP) - European stock markets mostly slid Tuesday (July 19) as data showed Brexit fears weighing on the German economy and British inflation rising, while Wall Street eased lower to break a record run.

London's benchmark FTSE 100 index edged slightly higher in mid afternoon trading, but its eurozone peers in Frankfurt and Paris both stayed firmly in the red.

The euro and pound were both lower against the dollar.

Investor confidence in Germany plummeted in July to the lowest level in nearly four years on concerns about the fallout for Europe's biggest economy from the British vote to exit the European Union, a leading survey showed.

The investor confidence index calculated by the ZEW economic institute plunged by a bigger-than-expected 26 points to minus 6.8 points in July - the lowest level since November 2012, the think-tank said in a statement.

"The Brexit vote has surprised the majority of financial market experts," said ZEW president Achim Wambach. "Uncertainty about the vote's consequences for the German economy is largely responsible for the substantial decline in economic sentiment."

The International Monetary Fund also forecast on Tuesday that the uncertainty created by Britain's vote to leave the European Union will slow the global economy into next year.

Britain's annual inflation rate, meanwhile, rose last month from May, separate data showed, and faces further gains as a weak pound caused by the Brexit vote raises import prices.

The 12-month Consumer Price Index rose by 0.5 per cent in June, the Office for National Statistics said in a statement.

CPI had risen by 0.3 per cent in the year to May, the ONS added.

"Sterling's weakness means higher import prices, and this is expected to feed through to significantly higher inflation figures in the coming months," said Ben Brettell, senior economist at stockbroker Hargreaves Lansdown.

The pound slumped to 31-year lows against the dollar after Britain voted on June 23 to exit the European Union. The currency has since recovered slightly.

Italian bank shares, meanwhile, took a hit following a ruling by the EU's top court upholding rules that require investors to accept losses before state aid is used to shore up lenders.

Shares in Banca Monte Paschi, which is in the most urgent need of being shored up, fell by 5.6 per cent, in mid afternoon trades, while top bank Unicredit shed more than 2 per cent.

With a key referendum on political reforms months away, Italy's government want to avoid inflicting losses on the many small invstors who bought up unsecured bank debt.

Wall Street opened mostly lower with traders catching their breath after a week-long stretch of records for the Dow, with earnings disappointments in Netflix and Philip Morris spurring selling.

Elsewhere on Tuesday, Asian stock markets mostly fell on profit-taking following a week-long rally - but Tokyo headed for a sixth straight gain as a weak yen boosted exporters, traders said.

The rally in Japan's export sector was enough to offset a more than 10-percent plunge in mobile giant SoftBank, which was hammered after announcing a US$32 billion (S$43 billion) deal on Monday to buy British chip designer ARM Holdings.

Hopes for fresh global central bank stimulus, coupled with forecast-beating readings on US jobs and retail sales, have injected some much-needed optimism after last month's shock Brexit referendum.

London - FTSE 100: UP 0.1 per cent at 6,701.93 points

Frankfurt - DAX 30: DOWN 1 per cent at 9,969.92

Paris - CAC 40: DOWN 0.75 per cent at 4,325.21

EURO STOXX 50: DOWN 1 per cent at 2,922.21

New York - DOW: DOWN 0.03 per cent at 18,527.30

Tokyo - Nikkei 225: UP 1.4 per cent at 16,723.31 (close)

Hong Kong - Hang Seng: DOWN 0.6 per cent at 21,673.20 (close)

Shanghai - Composite: DOWN 0.2 at 3,036.60 (close)

Euro/dollar: DOWN at US$1.1021 from US$1.1075

Pound/dollar: DOWN at US$1.3122 from US$1.3257

Dollar/yen: UP at 106.37 yen from 106.14 yen