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European equities mostly drop as outlook darkens
LONDON, Oct 18, 2018 (BSS/AFP) – US stocks followed European stocks down
Wednesday on stubborn worries over global trade and high oil prices, while an
EU offer to extend Britain’s Brexit transition period could not keep London
in positive territory.
That offer and lower British inflation had briefly helped the FTSE 100
index higher but the index closed just in the red, while Frankfurt and Paris
suffered larger falls despite earlier Asian gains.
On Wall Street, the Dow had shed 0.3 percent more than two hours into
trading.
Barclays chief European economist Antonio Garcia Pascual said two key
factors were casting a shadow over the wider outlook: the potential prospect
of $100 oil and the festering global trade war.
Capital Economics warned of an impending slowing of the US economy as
monetary policy tightens.
“We are not explicitly forecasting a recession, but we believe that the
economy will slow sharply in 2019 as prior monetary tightening bites and
fiscal stimulus fades,” the consultancy said.
Oil fell Wednesday after data showed a drop in US stockpiles — but
dealers kept a close eye on Riyadh, with major producer Saudi Arabia under
intense pressure over the disappearance of journalist Jamal Khashoggi.
– Oil supply shock? –
Traders are on tenterhooks over any fallout because OPEC kingpin Saudi
Arabia is the world’s biggest oil exporter.
Investors fear oil could shoot back above $100 per barrel on Saudi
tensions — and also on sliding output from Iran which faces renewed US
sanctions next month.
“This is a big issue for Europe in general because Europe is highly oil
dependent,” Pascual told AFP.
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“A big supply shock could be something that Europe would not cope very
well with.”
Meanwhile, this year US President Donald Trump has levied or threatened
tariffs on goods from economies around the world, notably China, but also on
traditional allies including the European Union.
“I’m very worried about trade,” said Pascual, noting Trump’s threat of a
25-percent tariff on European car imports.
“We have US-China trade war — but we also have the prospect of a US-EU
trade war.”
– ‘Worst case scenario’ –
Barclays estimates that a scenario of $100 oil could slash 0.6 percentage
points from its current 2019 global economic growth guidance of 3.8 percent.
The bank also estimates that its “worst-case scenario” of $100 oil and a
US-EU trade war could slash 2019 eurozone economic growth by 1.0 percentage
points from its current forecast of 1.9 percent.
European economies are already being buffeted by concerns surrounding
Brexit as well as Italy’s fiscal troubles.
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