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European shares fell in early trading on Wednesday, reversing part of the previous day’s tentative bounce and hurt by another drop in oil prices as well as by Russia’s brewing financial crisis.
The Russian rouble remained volatile on Wednesday despite foreign currency sales by the finance ministry.
1998 crisis
The currency is still down almost 50 per cent against the dollar this year. The slump has revived memories of the 1998 crisis when the currency collapsed and sparked a sell-off in European equities with Germany’s DAX plunging nearly 40 per cent in 2-1/2 months.
“The attack this week on the rouble has been quite violent, and the market is now pricing in a recession in Russia next year,’’ said Arnaud Scarpaci, fund manager at Montaigne Capital.
“A lot of European companies exposed to Russia are under pressure. It’s better to avoid names such as Metro, Nokian and Societe Generale, at least until things stabilise in Russia.’’
European cos under pressure
Shares in Raiffeisen Bank International, which relies heavily on the Russian market for profits, has fallen 53 per cent so far this year, and hit another record low on Wednesday, falling 2.9 per cent.
Danish brewer Carlsberg and Finnish tyre maker Nokian, which both have a strong exposure to Russia, are down 24 per cent and 44 per cent, respectively in 2015.
At 0908 GMT, the FTSEurofirst 300 index of top European shares was down 0.8 per cent at 1,305.29 points.
Brent futures
Brent futures fell more than 1 per cent, down for a sixth straight session, with persistent worries of a supply glut keeping prices near a 5-1/2 year low below $60 a barrel.
Total was down 0.8 per cent on Wednesday, Saipem was 2.8 per cent lower and BP was down 0.5 per cent.
Crude prices have dropped nearly 50 per cent since June, forcing a number of European oil services companies, including Seadrill and Fugro, to scrap dividends as oil majors accelerated cost-cutting.
Energy index
The STOXX energy sector index has fallen 30 per cent in the past six months.
The relentless drop in oil prices has also fuelled fears of deflation in the euro zone, bolstering expectations that the European Central Bank will start buying sovereign bonds next year in a bid to revive inflation and support the euro zone economy.
Euro zone inflation is now at 0.3 per cent, far below the bank’s target of just below 2 per cent.
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