Europe midday: Shares extend losses as US debt rating cut shocks markets

European stock markets extended losses to be almost 2% lower on Wednesday after a surprise cut in US government debt ratings by Fitch, citing a lack of confidence in fiscal management due to continuing political standoffs.

The pan-European Stoxx 600 index was down 1.75%, with all major bourses lower. Fitch cut the US long-term foreign currency issuer default rating to AA+ from AAA on Tuesday, citing an erosion of governance and expected "fiscal deterioration over the next three years".

It highlighted brinksmanship in Washington over debt ceiling negotiations earlier this year that saw President Joe Biden signing a debt limit deal on June 2, just before the June 5 date when the nation could default.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "The "last-minute saves performed by Washington aren’t the kind of actions held in high esteem by rating agencies, but the lack of movement in US Treasury Bonds and the dollar index suggests the market has already largely quantified and assessed the damage done from recent fall outs".

"It’s true that this move by Fitch is somewhat based on outdated data, especially with the trajectory of inflation now in at a more favourable gradient."

In equity news, shares in Taylor Wimpey rose, despite the UK housebuilder forecasting a halving of annual operating profit as higher mortgage costs hit the real estate market. Rival Barratt was also higher.

Weapons maker BAE Systems also gained as the company cashed in on the war in Ukraine and continuing geopolitical uncertainty.

Convatec shares gained as the medical products and technologies company raised guidance on the back of a rise in first-half profit.

Digital wholesale platform Auto1 Group slumped on first-half results.as the company reported narrower losses.

Shares in Atos plunged more than 12% after news Czech billionaire Daniel Křetínský was in talks to buy the company's lossmaking IT services unit, as the French technology group tries to cut debt.

Reporting by Frank Prenesti for Sharecast.com