[FRANKFURT] Volkswagen AG's unfolding emission-test scandal and worries about global growth weighed on investor sentiment in Europe, sending the region's stocks lower.
Volkswagen tumbled 20 per cent, dragging a measure of carmakers to its biggest two-day slump since 2008, after saying irregularities on diesel-output readings extend to 11 million vehicles around the world, and it has set aside 6.5 billion euros (US$7.3 billion) in an initial tally of the costs. Shares have lost 35 per cent since its admission of cheating on US air-pollution tests. PSA Peugeot Citroen SA fell 8.8 per cent after France's finance minister called for a European investigation of the industry.
"The extremely negative thing about it is that you cannot quantify the overall costs and penalties for VW that will occur," said Matthias Jasper, head of equities at WGZ Bank in Dusseldorf. "It may take years to come and people are getting really nervous about it. I'm completely unable to give a time horizon when this may end; it's a pretty scary picture. This is also the reason why even long-term oriented investors are dumping the shares."
The Stoxx Europe 600 Index dropped 3.1 per cent to 346.67 at the close of trading, its lowest since Aug. 24. Equities remain volatile as investors also parse comments from Federal Reserve officials for signals on the trajectory of interest rates after the central bank last week held its fire amid concerns over global growth. A measure of European stock volatility surged 19 per cent today. The volume of Stoxx 600 shares changing hands was 18 per cent higher than the 30-day average. Germany's benchmark DAX Index slid 3.8 per cent to its lowest level since January, and the worst performance among western-European markets.
Fed Bank of Atlanta chief Dennis Lockhart joined his counterparts from San Francisco, St Louis and Richmond on Monday, in saying that he's confident policy will be tightened this year as concerns over turmoil in international markets should prove temporary.
A lecture by Fed Chair Janet Yellen later this week will be watched for more clues on the Fed's intentions. Odds of a hike at the Fed's next meeting in October are at 18 per cent, according to Fed funds futures, while the probability of an increase at the last meeting of the year is about 43 per cent, down from about 59 per cent a week ago.
"Either investors believe the Fed should have hiked rates and they are trying to force its hand, or they believe that the Fed is genuinely worried about a real problem in global growth and are trying to exit the market," said Ben Kumar, a fund manager who helps oversee about $14 billion at Seven Investment Management.
Commodity producers tumbled as prices from coal to zinc slid amid investor concern about China's economic slowdown. Glencore Plc dropped 11 per cent to a record low. Anglo American Plc fell 6.7 per cent to a 15-year low, while BHP Billiton Ltd and Rio Tinto Group lost at least 3.5 per cent.
Roche Holding AG and Novartis AG weighed heaviest on a gauge of health-care stocks, falling at least 3.6 per cent, while Shire Plc slid 5.3 per cent, after Hillary Clinton said she will propose price caps and research-and-development spending guidelines for the pharmaceutical industry.