Iraqi fears hit European shares but German bond yields fall
Iraqi fears hit European shares but German bond yields fall
LONDON - European shares fell on Wednesday, mirroring losses in the US and Asia, as fears violence in Iraq could escalate further prompted investors to take refuge in safer assets such as German bonds.
The FTSEurofirst 300 index of top European shares fell 0.7% to a three-week low, while Germany's benchmark DAX shares index was down 0.6% by 7.53am GMT. The MSCI world equity index, which tracks shares in 45 countries, was down 0.3% after hitting a one-week low.
'The situation in Iraq is rattling investors and there's a risk of escalation if the US decides to intervene there. This is what triggered a sell-off in the last hour of trading on Wall Street,' Montaigne Capital fund manager Arnaud Scarpaci said.
US Secretary of State John Kerry urged leaders of Iraq's autonomous Kurdish region on Tuesday to stand with Baghdad in the face of a Sunni insurgent onslaught that threatens to dismember the country.
His comments came as security forces fought the rebels for control of the country's biggest oil refinery and militants launched an attack on one of its largest air bases less than 100km from the capital. More than 1,000 people, mainly civilians, have been feared killed in less than three weeks.
The weakness in European stocks followed a sell-off in overseas markets. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4%, while Japan's Nikkei ended 0.7% lower. In volatile US trading, the S&P 500 closed 0.6% weaker after hitting a fourth record high following upbeat US data.
Risk-averse investors turned their attention to relatively safer assets. Yields of German government bonds, perceived as safe havens, fell towards their lowest this year. German 10-year yields were one basis point lower at 1.31%.
'It's a volatile situation in Iraq and Treasuries and bunds benefit from flight to quality,' said Nick Stamenkovic, bond strategist at RIA Capital Markets in Edinburgh.
Oil markets were mixed as traders weighed the likelihood of supply disruptions from Iraq. Analysts said lingering worries that continued violence in Iraq would dent supplies from the Organisation of Petroleum Exporting Countries' second-largest producer kept a floor under prices.
US crude for August delivery advanced 0.2%, while Brent crude for August fell 0.5%.
'Oil prices have been unusually stable in recent years, but events in Iraq are causing a reassessment of medium-term oil market fundamentals that we expect to translate into a phase of higher long-term prices and more volatile trading conditions,' strategists at Barclays said in a note to clients.
In the currency market, the dollar slipped against the yen and eased against the euro, with some investors cautious ahead of the final reading of the first-quarter US gross domestic product.
It is forecast to be revised down and likely to boost expectations that the Federal Reserve is in no hurry to tighten policy. The dollar was down 0.1% versus the yen at ¥101.90, while the euro was up at $1.3615.
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