European stocks dropped sharply on Wednesday as sectors ranging from banking to energy, metals and chemicals were hit by concerns about the impact of a prolonged recession.
“The economic slowdown will continue to weigh – it will be played out with falling commodity prices and continued pressure on banks, and with those sectors being heavily weighted, the benchmark indices will remain under pressure,” said Matt Buckland at CMC Markets.
German chemicals giant BASF cut its profit outlook for the second time in as many months and said it would roll back production, citing a “massive” decline in demand in key industries.
S&P Equity research cut its recommendation on the stock from “buy” to “hold”, saying the magnitude of the capacity reduction, at 80 plants and involving 20 per cent of BASF’s global workforce, came as a surprise.
BASF shares fell 13.7 per cent to €21.96, dragging other chemical stocks lower. In Amsterdam, Akzo Nobel dropped 10.2 per cent to €24.88, while Air Liquide of France lost 8.6 per cent to €61.22 and Switzerland’s Syngenta slid 6.1 per cent to SFr188.
The benchmark FTSE Eurofirst 300 fell 4 per cent to 811.99, Frankfurt’s Xetra Dax fell 4.9 per cent to 4,354.09 and the CAC 40 in Paris shed 4 per cent to 3,087.89
The price of US crude slid below $54 a barrel, knocking oil stocks, in spite of calls from Opec for help from non-members of the production cartel in maintaining price stability.
Norway’s StatoilHydro fell 5.8 per cent to NKr105.30 and Lisbon-listed Galp Energia lost 8.9 per cent to €8.97, while in France Total shed 4.2 per cent to €39.05 and Austria’s OMV dived 14.1 per cent to €19.
Meanwhile, shares in Swedish steelmaker SSAB tumbled 15.5 per cent to SKr53 after it said it had seen a sudden sharp drop in demand. Paris-listed ArcelorMittal sank 8.9 per cent to €15.09.
ING, the Dutch financial services group, fell 11.9 per cent to €6.28 after Goldman Sachs cut its price target to €9 from €14 and kept its rating at “neutral”, saying asset leverage remained high and underlying trends in the business warranted caution from investors.
The broker added: “We anticipate these difficulties are likely to persist and indeed worsen in 2009, making the visibility of the company’s earnings and book value difficult to assess.”
Elsewhere in the sector, France’s Société Générale fell 7.8 per cent to €32.60, Belgian-Dutch bank Fortis shed 13.2 per cent to €0.61, Belgium’s KBC Group lost 13.4 per cent to €20.61 and Swiss bank UBS fell 9 per cent to €12.07.
Irish banks, however, rallied strongly on talk that the government was poised to inject funds, while further rumours suggested foreign investors may step in with cash.
Anglo Irish Bank jumped 20.8 per cent to €1.01, Bank of Ireland climbed 12.7 per cent to €1.05 and Allied Irish Banks rose 3.4 per cent to €2.25.
Credit Suisse remained cautious, however, saying: “We still think valuations do not offer enough upside to tempt us back in, particularly until we have further clarity on capital.” The broker lowered its price targets on all three banks.
Carmakers suffered further dire news after Japan’s Toyota Motor said it was halting production at all of its North American factories for two days next month.
Renault fell 9.8 per cent to €15.91 and domestic rival Peugeot lost 9.3 per cent to €13.32.
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