London: European shares fell early on Thursday to snap a five-day winning run after the United States deflated hopes of an early economic recovery by cutting growth forecasts and Standard & Poor’s cut its outlook on the United Kingdom.
At 2:16am, the FTSEurofirst 300 index of top European shares was down 1.9% at 859.28 points. The benchmark has rallied 33% from a lifetime low hit on 9 March.
On Wednesday, the United States cut its forecasts for the next three years, forecasting sharper shrinkage of the economy this year than it did in January.
“There are concerns finally coming through about where the underlying growth is going to come from,” said Justin Urquhart Stewart, investment director at Seven Investment Management.
“We need a growing level of demand. There’s a certain amount of restocking happening, and unfortunately the market has been taking that as a sign of a recovery, which it is not,” he said.
Adding to investor nerves, Standard & Poor’s cut its outlook on the United Kingdom to negative from stable, saying the country’s debt burden may approach 100% of gross domestic product and stay at that level in the medium term.
Miners were broadly weaker, with BHP Billiton, Rio Tinto and Anglo American down 1.6-5.6% as copper fell 2.2%, while heavyweight oil shares BP, Shell and Total lost 1.5-2% as oil took a breather below $62 a barrel.
Steelmaker ArcelorMittal was a prominent faller, losing 4.9% after Moody’s cut its rating to the lowest investment grade, citing concerns over the effect weak steel markets will have on the company’s credit profile.
Across Europe, Britain’s FTSE was down 2.4%, Germany’s DAX down 1.8% and France’s CAC down 1.8%.
European shares fell 45% in 2008, punctured by a credit market crisis that forced governments to bail out banks and tipped major economies into recession.
Since 9 March, however, shares have risen sharply, driven by hopes that the downturn will not be as deep and prolonged as originally feared. Banks and commodity stocks led the recovery, and many big company results beat forecasts, though analysts have been cutting estimates ahead of the announcements.
Macro data has been broadly stronger, and on Thursday, surveys showed that the euro zone’s services and manufacturing sectors contracted less than expected in May as firms saw the pace of decline in new orders ease
However, markets focused on the US figures and the S&P outlook cut for the United Kingdom.