December 20, 2017 / 8:40 AM / in 10 months

Euro zone shares tumble as tax bill drives euro up against dollar

MILAN/LONDON (Reuters) - European shares dropped on Wednesday, extending their decline from the previous session as currency dynamics took hold of the stock market.

The German share price index, DAX board, is seen at the stock exchange in Frankfurt, Germany, December 19, 2017. REUTERS/Staff/Remote

The dollar’s dip as investors considered a U.S. tax overhaul a done deal translated into a boost for the euro and hurt euro zone benchmarks.

Euro zone stocks fell 0.7 percent and the top index of euro zone companies dropped 0.8 percent.

Germany’s exporter-heavy DAX index fell 1.2 percent. Britain’s FTSE 100, insulated from the euro’s gains, edged 0.3 percent lower.

The Republican-led U.S. House of Representatives was set to give final approval to the sweeping $1.5 trillion tax bill later on Wednesday, completing the largest overhaul of the U.S. tax code in more than 30 years.

But the U.S. dollar buckled and U.S. stocks edged lower, with investors assuming the effects of the bill were already priced in.

The euro’s sharp gain against the dollar hurt European stocks with large U.S. earnings.

Glanbia, which derives a quarter of its revenues from the U.S., sank 4.6 percent.

“In the short term the U.S. tax reform is already priced in. What remains to be seen is whether U.S. companies will follow up with share buy-backs or investments,” said Andrea Scauri, fund manager at Italy’s Ifigest.

He said the European equity market was penalised by a strong euro, adding that any further gains by the currency could lead to a downwards revision of earnings estimates, especially for the export-oriented DAX index.

“This is the big risk I see for 2018,” he said.

The STOXX 600 has risen more than 8 percent so far this year, while the euro zone STOXXE index is up 11.8 percent.

Both indexes are below the peaks they hit at the start of last month as resurfacing political worries and a slowdown in earnings growth have sparked some profit taking.

Financials, which have risen steadily as the tax reform bill progressed, were the biggest weight on benchmarks. Heavyweights Unicredit, Santander and BNP Paribas were prominent fallers.

Steinhoff was the biggest loser on the STOXX on Wednesday, down 35 percent as the scandal-hit South African furniture retailer started losing credit lines from lenders.

Steinhoff said it was still unable to determine the scale of accounting irregularities which have wiped more than $10 billion off its market value over the past two weeks.

Allied Irish Banks fell 3.8 percent after the Irish Central Bank told the country’s main banks to compensate thousands more mortgage customers they overcharged.

The bank said it would pay redress and compensation to an additional 900 customers.

The top gainer was Stada, up 8.4 percent after the German pharmaceutical company agreed a new profit transfer deal with its new majority investor, Nidda Healthcare.

Dufry rose 2.6 percent after activist investor Elliot took a 6 percent stake in the company.

RWE dropped 0.7 percent after the CEO of its Innogy unit resigned just days after a profit warning that hit shares in both companies. Innogy fell 1 percent.

Reporting by Danilo Masoni and Helen Reid; Editing by Larry King

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