The Wall Street Journal reports: "the Stoxx Europe 600 ended 2.4% lower, Germany's DAX shed 2.5%, while France's CAC-40 was 2.8% lower. In London, the FTSE 100 dropped 1.6%. The Spanish stock market was also hard hit, due to concerns around the exposure of its constituents to Latin America. The IBEXX 35 index ended down 3.7%.
"European equities had a very good run between December and January and some investors had started to find benchmark indexes overvalued," said Jeremy Batstone-Carr, chief economist and strategist at London-based brokerage and wealth manager Charles Stanley, which has around £18 billion ($29.86 billion) in assets under management. "All was required was a trigger for investors to start to take money off the table and take profit."
It was difficult to place a single catalyst for this episode of risk aversion. Concerns on the slowdown of the Chinese economy, the withdrawal of global stimulus by the world's central banks, and local strains on emerging-market economies contributed to the negative shift in global sentiment.
Emerging-market currencies also dropped sharply, with the Turkish lira, the South African rand and the Russian ruble touching multiyear lows against the dollar, and investors found safety in U.S. Treasury bonds with the yield on the 10-year Treasury dropping 1.3% to 2.74%.
Sterling also dropped sharply after Bank of England Gov. Mark Carney said the central bank will update its interest-rate guidance in February after a faster-than-expected fall in unemployment. In a speech at the World Economic Forum in Davos, Switzerland, Mr. Carney indicated that interest rates wouldn't be rising any time soon, despite U.K. unemployment approaching the 7% threshold.
