Europe midday: Investors dial back on risk as gold hits 2013 highs on Mideast tensions
Stocks on the Continent were extending their losses from Friday's session come midday, with traders cutting back on risk given the possibility that tensions in the Middle East might rise further, at least in the very near term, while gold prices hit a seven-year high.
Over the weekend, the Iraqi parliament passed a motion recommending the withdrawal of US troops from the country in protest for the strike against Iran's most reputed military commander, while Tehran said it no longer felt bound by the 2015 international ban on its uranium enrichment programme, although Iran reportedly added that it would return to the agreement if the economic sanctions on the country were lifted.
"The escalation in the middle east was both unexpected and unwelcome. Investors are now fully in defensive mode, hoping for the best but fearing the worst," said Craig Erlam, senior market analyst at Oanda.
"Unfortunately [...] retaliation looks almost inevitable. Now is a time for calm heads and I'm afraid there doesn't appear to be many of those around."
As of 1238 GMT, the benchmark Stoxx 600 was down by 0.82% at 414.91, alongside a 1.29% drop on the German Dax to 13,049.78, while the Cac-40 was retreating by 0.88% to 5,990.99.
A popular gauge of volatility for European stocks, the VStoxx index which tracks price volatility on the Euro Stoxx 50, was up by 11.89% to 15.62 after hitting an intra-day high of 16.81.
In parallel, front month gold futures on COMEX were climbing 1.69% to $1,578.60/oz. - overnight they hit $1,591/oz., their loftiest level since early 2013 - and crude oil futures were 1.11% higher to $69.38 a barrel on the ICE, having earlier reached the $70.74 per barrel mark.
Further afield, investors were keeping an eye on weakness in bourses and exchange rates across the Middle East, including in Iran.
Pacing losses on the Stoxx 600 were shares of German drug group Evotec SE, with its stock slumping by over 5% although it remained near record levels. Investors also appeared to be booking some profits on Hikma Pharmaceuticals.
German retailer Metro AG was close behind after analysts at Bernstein downgraded their view on the shares from 'market perform' to 'underperform'.
Going the other way, the Stoxx 600 Oil&Gas sub-index was 0.91% higher, with John Wood Group, Galp Energia, BP, Total, Equinor and Eni all higher.
Helping to put a bid into the sector perhaps, aside from the geopolitical tensions in the Middle East, J.P. Morgan's Mislav Matejka told clients: "Energy remains a cheap hedge on geopolitical risks."
Gold wasn't the only thing at 2013 levels in financial markets, IHS Markit's so-called composite euro area Purchasing Managers' Index pointed to economic growth at its weakest since 2013 during the fourth quarter.
The PMI, which tracks the pace of expansion in the single currency bloc's factory and services sector combined, was revised up to a reading of 50.9 for December, versus a preliminary print of 50.6 which itself had been unchanged from the month before - although some economists saw a silver lining in the data.
"Policymakers will be encouraged by the resilient performance of the more domestically-focused service sector [...] Business optimism about the year ahead has also improved to its best since last May, suggesting the mood among business has steadily improved in recent months," said IHS Markit's Chris Williamson
Meanwhile, in Spain, it was a holiday on Monday, but investors were waiting for a vote in parliament the next day that could see a minority government voted in, albeit with a majority of just one seat, if that.