European stock markets hit their lowest close in a week yesterday as weaker-than-expected US confidence data and German business sentiment fuelled economic growth worries. Banks were again the biggest losers amid worries the sector will be hit by the turmoil in credit markets.
The dollar fell to a record low against the euro for a fourth consecutive session on growing expectations that the Federal Reserve will cut interest rates again next month. The euro traded as high as $1.4153, an intra-day record and was last night trading at $1.4148.
A report by NCB yesterday highlighted the impact this is expected to have on Irish companies with operations in the US, saying that a 10 per cent decline in the dollar versus the euro (it is currently down 6.5 per cent this year) could hurt the earnings of food groups Glanbia, IAWS and Kerry and building materials group CRH by 3-5 per cent.
Luxury goods group Waterford Wedgwood could see its earnings cut by about 11 per cent as a result of its exposure to the US.
Conversely, the broker said that Aer Lingus and Ryanair could benefit from the decline by 15 and 20 per cent respectively.
NCB said that, while the decline will not impact on the companies' underlying cashflows or competitiveness, the prospect of lower earnings growth forecasts will affect sentiment.
The Irish stock market again reacted more strongly than its peers, with the Iseq shedding 176.77 points (2.27 per cent) - more than twice the losses of rival European indices. Dealers said that international institutions have been deserting the Irish market as they fear the economy has passed its peak and that there is a slowdown in construction.
The FTSEurofirst 300 index of leading European shares closed 1.1 per cent weaker at 1,529.4 as German business sentiment fell to its lowest in more than 18 months in September, according to the Munich-based Ifo economic research institute. London's FTSE 100 lost 1.1 per cent, while in Paris the CAC-40 was down 0.9 per cent. In Frankfurt, the DAX slipped 0.2 per cent.
In the US, stocks were little changed in early afternoon trade as signs of a deteriorating economy offset hopes of further interest rate cuts by the Fed. A report showed consumer confidence sank unexpectedly to a two-year low in September, while another said the pace of US existing home sales fell last month. After the data, US short-term rate futures showed a higher chance the Fed will cut rates by 25 basis points in October.The Dow fell 3.66 points, or 0.03 per cent, at 13,755.40. The S&P 500 was down 3.12 points at 1,514.61. The Nasdaq rose 5.74 points at 2,673.69. (Additional reporting, Reuters)
