European Shares Drop Ahead of Yellen Speech

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European Shares Drop Ahead of Yellen Speech

European shares plunged, trimming a weekly surge, as investors awaited a speech by Federal Reserve Chair Janet Yellen for suggestions on the timing of interest-rate change.

Lonmin Plc added 2.4% after Goldman Sachs Group upgraded its recommendation on the platinum producer. Luxottica Group SpA plunged 1.7% after Il Sole 24 Ore said the firm’s board may convene Sept. 1 to appoint a new chief executive officer.

The Stoxx Europe 600 Index shed 0.4% to 336.29 as of 12:04 pm in London, after declining as much as 0.7%. The gauge has soared 2% this week as investors speculated that stalling of manufacturing in the euro area will add pressure on the European central Bank to embrace asset purchases called quantitative easing. Standard & Poor’s 500 Index futures dropped 0.1% today.

“For the euro zone right now, bad news is good news, as bad news intensifies expectations for QE,” Gunther Western of Dusseldorf, Germany-based Meriten Investment Management GmbH told Bloombergby phone.

The Stoxx 600 traded at a volume 11% lower than the average for the past 30 days by this time of the day.

Yellen is expected to address the labor market as the Fed Bank of Kansas City Economic Symposium in Jackson Hole, Wyoming. Her speech, due at 8 am local time, may carry suggestions about the timing of a hike in US interest rates, after economic data touching on manufacturing to property yesterday showed the US economy is on a consistent recovery path.

Many analysts are of the view that Yellen will confirm to markets that rates will stay low for a while, despite Fed minutes showing Fed policy makers had discussed an earlier rise.

“Markets are arguably pricing in a clearly dovish speech. Should Yellen suggest that the more hawkish [Fed] members are starting to influence her thinking then we could see significant volatility: most likely higher bond yields, lower equities,”the Wall Street Journal quotes Rabobank analysts as saying.

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To contact the reporter of this story; Jonathan Millet at john@forexminute.com