Europe midday: Stocks in the red as Brexit fears intensify

European stocks fell as investors shunned risk for the relative safety of bonds amid growing concern the UK might vote to leave the European Union at the upcoming referendum and ahead of rate announcements from the Federal Reserve, the Bank of England and the bank of Japan later this week.

At midday, the benchmark Stoxx 600 index was down 1.1%, Germany’s DAX was off 0.6% and France’s CAC 40 was 1.3% lower.

Lee Wild, head of equity strategy at Interactive Investor, said: “Those who thought fears about a possible Brexit were confined to the UK and Europe should think again. All the major markets have begun to price in a 'Leave' vote, and it's still over a week to polling day. Investors are hugely reluctant to take new 'long' positions before the 23 June vote.

“There's the small matter of a Federal Reserve policy meeting, too. There's no way the Fed will raise interest rates on Wednesday night, but comment on policy will be widely-watched, and traders are not in buying mood.

Investors have a lot on their plates. There are some big decisions to be made which will have a massive impact on economies and company profits. It's why the volatility index, or 'fear' index, just surged to its highest since February.”

As investors looked for somewhere safe to park their cash, yields on Germany’s 10-year bund turned negative for the first time, while the yield on the 10-year UK gilt was five basis points lower. When a bond falls below zero it means investors are effectively paying the government to hold its bonds.

Oil prices retreated after the International Energy Agency said oil markets are moving close to balance in the second half of this year, with West Texas Intermediate down 1.4% at $48.22 a barrel and Brent crude down 1.3% at $49.69.

Meanwhile, the pound was up against the euro but down versus the US dollar as more polls suggested the UK would vote to leave the European Union in next week’s referendum and after weaker-than-expected UK inflation data.

Societe Generale strategist Kit Juckes said: “Our best guess of a post-Brexit reaction is still that GBP/USD loses 5-10% quickly, dragging other European currencies down too against the yen and dollar.”

“What’s changing this week…is that the very near-term outlook around the vote is now more symmetrical. GBP/USD is now as likely to rally by 10 figures in the immediate aftermath of the vote as to fall by 10, depending on the outcome.”

Brexit wasn’t the only thing on investors’ minds, as this week sees rate announcements from the FOMC on Wednesday, and the BoE and BoJ on Thursday.

In corporate news, Ashtead was on the front foot after the equipment rental firm said it had a strong fourth quarter and announced a bumper dividend and a £200m share buyback.

Shares in London-listed electronic component maker Premier Farnell rocketed after it agreed to be bought by Swiss-based Daetwyler Holding for 165p per share in cash.

Denmarks’ Novo Nordisk was sharply lower despite announcing that its best-selling diabetes drug cuts the risk of heart attacks by 13%.

On the macroeconomic front, figures released by Eurostat showed Eurozone industrial production grew more than expected in April.

Industrial production was up 1.1% from March versus expectations of 0.8% growth. Compared with April 2015, production grew by 2%, exceeding forecasts for a 1.3% increase.

However, Capital Economics economist Stephen Brown, said: “April’s strong rise in euro-zone industrial production is unlikely to be the start of a strong upturn.”

Other data released by Eurostat revealed that employment in the euro bloc increased 0.3% compared to the final three months of 2015, rising to the highest levels since the third quarter of 2008.

Seasonally-adjusted data showed the rate of quarter-on-quarter increase for the euro zone remained the same as the previous period's 0.30%, while across the 28 states of the wider EU there was a fall from the fourth-quarter's 0.4% rate.

Still to come, US retail sales are at 1330 BST while business inventories are at 1500 BST.