Europe’s benchmark stock posted Wednesday its worst one-day loss since October last year, after the country’s central bank allowed the tightly controlled yuan to slide even further, raising more concerns about the health of the world’s second-largest economy.
The Stoxx Europe 600 index SXXP, -2.70% slumped 2.7% to 382.99, building on a 1.6% loss from Tuesday, when markets globally were hit by the People’s Bank of China’s decision to devalue the yuan USDCNY, +0.9438% Analysts interpreted the move, through a shift to a more market-driven rate, as the restart of “currency wars” in which countries try to weaken their currencies to spur growth and boost exports.
The move in the yuan has hit European companies who rely on Chinese demand for their products particularly hard.
On Wednesday, China again allowed the yuan to depreciate again, sending it almost 1% lower against the greenback at the end of trade.
“If there was any doubt that this was not turning into a currency war, then the argument is looking increasingly tenuous now,” said Richard Perry, market analyst at Hantec Markets, in a note.
The decision is seen as a signal that Beijing is seriously concerned about slowing economic growth in China, with people inside the government pushing for an even lower exchange rate to help the country’s struggling exporters, Reuters reported. Read: Drop in Chinese yuan could reach 10%
“If this is the beginning of a larger move, say of 5−10% devaluation, clearly it will be an important driver of global markets for some time to come,” said Jens Nordvig, global head of fixed income research at Nomura, in a note.
China-exposed movers: Sectors that generate large chunks of their revenue from China were among biggest decliners on Wednesday. In the auto sector, Peugeot SA UG, -4.94% dropped 4.9%, BMW AG BMW, -3.88% lost 3.7% and Fiat Chrysler Automobiles NV FCA, -6.46% skidded 6.5%.
Luxury-goods makers were also hit, with shares of Burberry Group PLC BRBY, -3.52% BURBY, -2.34% off 3.5%, LVMH Moët Hennessy Louis Vuitton SE MC, -5.46% down 5.5% and Hermes International SCA RMS, -3.91% 3.9% lower.
National benchmarks: The China-fueled losses weighed on benchmarks across Europe. Germany’s DAX 30 index DAX, -3.27% slid 3.3% to 10,924.61, its first close below 11,000 in a month.
France’s CAC 40 index PX1, -3.40% erased 3.4% to 4,925.43, while the U.K.’s FTSE 100 index UKX, -1.40% lost 1.4% to 6,571.19.
Data: The latest health check on the U.K. labor market showed the unemployment rate for the three months to June remained at 5.6% as expected.
Elsewhere, the Bank of France said the country’s current account surplus widened in June compared with May as the trade deficit narrowed during the month.
Source: MarketWatch
