Europe close: Shares hit by US debt rating cut; United Internet surges

(Sharecast News) - European stock markets closed sharply on Wednesday after a surprise cut in US government debt ratings by Fitch, which cited a lack of confidence in fiscal management due to continuing political standoffs. The pan-European Stoxx 600 index closed down 1.35% at 460.84, with all major bourses lower. Fitch cut the US long-term foreign currency issuer default rating to AA+ from AAA on Tuesday, citing an erosion of governance and expected "fiscal deterioration over the next three years".

It highlighted brinksmanship in Washington over debt ceiling negotiations earlier this year that saw President Joe Biden signing a debt limit deal on June 2, just before the June 5 date when the nation could default.

"August has a long-standing reputation as a tough month for equities. So far, the reaction to the US debt downgrade appears to be another boost to this old market adage," said IG analyst Chris Beauchamp.

"While there isn't much new in the downgrade itself, it seems to have been the trigger for some wider selling. With softer data and earnings also hitting sentiment, stocks seem ripe for an August correction."

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "the "last-minute saves performed by Washington aren't the kind of actions held in high esteem by rating agencies, but the lack of movement in US Treasury Bonds and the dollar index suggests the market has already largely quantified and assessed the damage done from recent fall outs".

"It's true that this move by Fitch is somewhat based on outdated data, especially with the trajectory of inflation now in at a more favourable gradient."

In equity news, shares in United Internet took off after its majority-owned German mobile and broadband provider 1&1 agreed agreed a deal for Vodafone to provide 5G coverage to its customers, in a move that would see it replace Telefonica Deutschland.

The news saw shares in Telefonica Deutschland's slump almost 17%, while parent company Telefonica fell 7%. Shares in Vodafone rose 3%, 1&1 soared 16% and United Internet was up 15%.

Taylor Wimpey rose, despite the UK housebuilder forecasting a halving of annual operating profit as higher mortgage costs hit the real estate market. Rival Barratt was also higher.

Weapons maker BAE Systems also gained as the company cashed in on the war in Ukraine and continuing geopolitical uncertainty.

Convatec shares gained as the medical products and technologies company raised guidance on the back of a rise in first-half profit.

Digital wholesale platform Auto1 Group slumped on first-half results.as the company reported narrower losses.

Shares in Atos plunged more than 12% after news Czech billionaire Daniel Křetínský was in talks to buy the company's lossmaking IT services unit, as the French technology group tries to cut debt.

Reporting by Frank Prenesti for Sharecast.com