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Stocks drop as Spain crisis heats up, pound falls

Dublin - The optimism that spurred US stocks to yet another record on Wednesday was missing in action throughout Asia and Europe, with Hong Kong shares tumbling and European peers trading lower as Spain’s Catalan crisis deepened.

The Stoxx Europe 600 Index headed for the biggest drop in almost two months, with all industry sectors in the red, after Spain said it would move ahead with suspending Catalonia’s autonomy.

Spanish shares lagged the benchmark and bond yields for peripheral Europe fluctuated. The slump in stocks in Hong Kong stood out in a mixed Asian session, coming even as China reported its economy expanded 6.8% last quarter, matching estimates. Oil fell for the first time in five days.

Underwhelming earnings from companies including Unilever and SAP SE further frayed investors’ nerves, already on edge amid concerns about the escalating Catalan stand-off, the lack of progress in Brexit negotiations and the search for a new Federal Reserve chief. The VIX index of market volatility jumped to the highest in five weeks, and the downbeat mood fed into US stock futures, which also fell.

“European markets have started the day firmly on the back foot as a raft of company report earnings missed expectations, while investors await the next steps with respect to the constitutional crisis in Spain and today’s EU summit in Brussels,” said Michael Hewson, chief market analyst at CMC Markets UK.

“We look set for a lower US open today. All eyes are likely to be on today’s meeting with current Fed chief Janet Yellen and US President Trump with some Republicans calling for her to be allowed to leave.”

The dollar marked time after small gains earlier this week and Treasuries rose. The pound weakened as data showed UK retail sales dropped more than forecast in September, making third-quarter growth in the sector the weakest in four years. The euro briefly dropped before recovering.

Elsewhere, the kiwi dollar plummeted 1.3% after New Zealand’s Labour Party got the backing of the nationalist New Zealand First Party to form a government. China’s currency retreated even after data from the central bank suggested that the country is now seeing capital inflows. Iron ore fell the most since September.

Here are some key events coming up this week:

• UK Prime Minister Theresa May is said to be planning to demand that the European Union move Brexit talks on to trade in a face-to-face showdown with leaders over dinner at the Brussels summit on Thursday.

• US economic data on Thursday includes jobless claims, Philadelphia Fed and leading index.

Here are the main moves in markets:

Stocks

• The Stoxx Europe 600 Index sank 0.7% as of 11:52, the lowest in almost three weeks.

• The UK's FTSE 100 Index declined 0.3%.

• Germany’s DAX Index sank 0.6% to the lowest in more than a week.

• Topix index rose 0.3% to the highest in more than 10 years.

• The MSCI Asia Pacific Index dipped 0.1%.

• The MSCI Emerging Market Index dipped 0.7% to the lowest in more than a week.

• Futures on the S&P 500 Index decreased 0.4% to 2 549.50, the lowest in more than a week.

Currencies

• The Bloomberg Dollar Spot Index dipped 0.1%.

• The euro gained 0.2% to $1.1806.

• The British pound decreased 0.4% to $1.3152, the weakest in more than a week.

• The Japanese yen rose 0.2% to 112.68 per dollar.

Bonds

• The yield on 10-year Treasuries decreased two basis points to 2.32%.

• Germany’s 10-year yield dipped less than one basis point to 0.39%.

• Britain’s 10-year yield decreased three basis points to 1.288%.

• Japan’s 10-year yield declined one basis point to 0.067%.

Commodities

• West Texas Intermediate crude fell 1.3% to $51.34 a barrel, the lowest in a week.

• Gold increased 0.3% to $1 284.68 an ounce.

• Copper declined 0.8% to $3.15 a pound.

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