European shares slipped to a one-month low in late trading on Thursday, tracking a sell-off in US stocks, as a stronger dollar undercut prices for industrial metals, causing mining shares to drop.
The STOXX Europe 600 Basic Resources index fell two per cent, making the sector the biggest decliner in Europe, as the prices of key base metals fell sharply following gains by the dollar index, which measures the US currency against a basket of major currencies.
Miners Rio Tinto and BHP Billiton fell 2.4 per cent and 2.9 per cent respectively. Contributing to the loss was a drop in China’s steel futures to a record low. That put more pressure on prices of iron ore, which have lost about 41 per cent this year.
“The dollar is having its bull run right now and that’s causing ripples around the world. Metals prices are getting depressed because of the currency and that is going to have a negative impact on mining companies,” said Lorne Baring, managing director, B Capital Wealth Management.
“The larger commodity players might be able to withstand the downward pressure as they have stronger balance sheets, but mid-level players are going to be squeezed.”
A stronger US currency tends to make dollar-priced metals costlier for the holders of other currencies and lowers demand for the raw materials.
The FTSEurofirst 300 index of top European shares ended 0.9 per cent lower at 1,373.09 points. It rose to a high of 1,391.80 in early trading before falling up to 1,369.63, the lowest since late August. A weaker open at Wall Street triggered the sell-off in Europe.
US stock markets fell 1.5 to 1.9 per cent after mixed data showed durable-goods orders declined by 18.2 per cent in August, the largest drop since the series started in 1992.
Initial claims for state unemployment benefits rose 12,000 to 293,000 for the week ended September 20, while the pace of growth in the US services sector slowed in September.
Britain’s blue-chip FTSE 100 fell one per cent. It was also affected by comments from Bank of England Governor Mark Carney, who said the bank was getting nearer to raising rates, but the exact date would depend on economic data.
However, analysts said that despite a sharp decline in shares yestersday, a weaker euro was expected to help European exporters and boost the region’s corporate earnings.
The single currency fell to its lowest level in nearly two years, reflecting a widening divergence between the monetary policy outlooks of the US Federal Reserve and the European Central Bank.
Analysts and fund managers said the currency drop should boost earnings three to six per cent, particularly for such industrial and pharmaceutical groups as Siemens and Sanofi, which get much of their revenue from outside the eurozone.
Aerospace group Airbus, who pays costs mostly in euros and sells planes mostly in dollars, rose 2.2 per cent. For Airbus, a 10-cent move in the euro against the dollar translates into savings of €1 billion in profits at the operating level, analysts said. (Reuters)