European equities hit by 'triple whammy' on Christmas Eve

US Treasury Secretary Steven Mnuchin spent the weekend trying to allay market jitters

London (AFP) - European stocks sank Monday, lacking Christmas cheer as investors fretted over a “triple whammy” of a US government shutdown, President Donald Trump’s feud with the Federal Reserve and the ongoing US-China trade war.

“Investors over in Europe are not immune to what is happening over in the United States,” ThinkMarkets analyst Naeem Aslam told AFP.

“The triple whammy is bound to have an impact over here – and hence we are seeing the markets down.”

At 1230 GMT, London’s FTSE 100 benchmark stocks index shed 0.5 percent to finish at 6,685.99 points in a half-day session before Christmas.

Paris meanwhile lost 1.5 percent in holiday-shorted deals.

Frankfurt remained shut after closing for business on Friday. All three major European markets will reopen Thursday.

- ‘No Christmas cheer’ -

“No Christmas cheer for investors,” concluded IG analyst Chris Beauchamp.

“As markets wind down … the cautious atmosphere persists.”

Oanda analyst Craig Erlam said Monday’s downwards move was amplified by illiquid pre-Christmas trade.

“A slowdown in the US reverberates everywhere and naturally therefore impacts global markets, albeit at times to a lesser extent,” Erlam said.

“The moves we are seeing, though, are just an extension of what has been building heading into the holiday period, rather than anything that is happening today.

“This can often also be exacerbated by the illiquid markets which are very apparent this time of year.”

- Market panic -

Asia meanwhile traded mixed after a weekend call by Treasury Secretary Steven Mnuchin to top US banking executives aimed at stemming market stress which resulted in Wall Street experiencing its worst week in a decade.

The Dow and the Nasdaq finished Friday with their biggest weekly drop since the start of the global financial crisis, as investors took fright.

Mnuchin spent much of the weekend in damage control mode following multiple media outlets reporting that Trump had privately asked cabinet members whether he has the authority to fire Fed Chairman Jerome Powell.

Last week, the central bank hiked rates, infuriating Trump who has ignored a traditional respect for the Fed’s independence, calling it “crazy”, “out of control” and a greater economic threat than China.

Mnuchin denied the reports of Trump seeking Powell’s scalp, tweeting on Saturday that the president told him: “I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so.”

The following day, Mnuchin announced he had called senior executives from six of the largest American banks to discuss the market turmoil and received assurances.

“The banks all confirmed ample liquidity is available for lending to consumer and business markets,” the Treasury said in a statement attached to a tweet from Mnuchin announcing the calls.

“We continue to see strong economic growth in the US economy with robust activity from consumers and business,” Mnuchin was quoted in the statement as saying, adding that he would convene a call with the President’s Working Group on financial markets later Monday.

- ‘Adding to uncertainty’ -

Analysts expressed both surprise and alarm at Mnuchin’s Sunday statement, saying it might do the opposite of calming current jitters.

“One of the risks … of making this kind of statement is that it could make market participants concerned that there was in fact a deeper issue at hand, if they were not already concerned in the first place,” noted currency analyst Fritz Louw at financial group MUFG.

“And that if they were concerned, such a farcical reassurance would most not likely not be sufficient to ward off these concerns.

“It simply adds to the uncertainty that is already roiling markets.”

Last week’s turmoil in Washington – which included a government shutdown that appears likely to last until at least Thursday and the abrupt resignation of Defense Secretary Jim Mattis – has spooked markets worldwide, with Tokyo hitting a 15-month low on Friday.

- Key figures at 1305 GMT -

London - FTSE 100: DOWN 0.5 percent at 6,685.99 points (close)

Paris - CAC 40: DOWN 1.5 percent at 4,626.39 (close)

EURO STOXX 50: DOWN 0.9 percent at 2,973.78

Frankfurt - CLOSED

Tokyo - CLOSED

Hong Kong - Hang Seng: DOWN 0.4 percent at 25,651.38

Shanghai - Composite: UP 0.43 percent at 2,527.01

New York - Dow: DOWN 1.81 percent at 22,445.37 (close)

Euro/dollar: UP at $1.1395 from $1.1372 at 2200 GMT on Friday

Dollar/yen: DOWN at 111.10 yen from 111.22 yen

Pound/dollar: UP at $1.2652 from $1.2645

Oil - Brent Crude: UP one cent at $53.83 per barrel

Oil - West Texas Intermediate: DOWN eight cents at $45.51