By Amruta Khandekar

(Reuters) -European shares dropped on Thursday after Liz Truss said she was resigning as UK’s prime minister, brought down by her economic programme that wrecked havoc on markets.

The region-wide STOXX 600 was down 0.2%, after rising as much as 0.1% to a session high right after the announcement.

“Truss took on an extra relevance to markets because of the policies that she attempted to implement and the markets’ reaction to them,” said Steve Sosnick, chief strategist at Interactive Brokers.

“You’d think that if someone was that deeply unpopular the market might rally or the currency might rally when she left. But I think the fact that neither is happening is telling us that market do crave political stability and we don’t have that.”

Meanwhile, Finnish telecom equipment maker Nokia and rival Ericsson reported weaker-than-expected earnings, bruised by ongoing patent battles which pressured margins and offset strong demand for 5G equipment.

Shares of the companies were down 8.9% and 16.7%, respectively.

More than half of the sectors were in negative territory, with telecom falling 3.4% to lead the declines.

The STOXX 600 had snapped a four-day rally on Wednesday, as earnings optimism was snuffed out by worrying inflation reports from Canada and the UK that fanned fears about more aggressive policy moves from central banks to rein in prices.

“There has been a pretty negative reaction in risk assets and bond markets to the inflation data. It ultimately means central banks like the Fed and the Bank of Canada may have to do even more work to tighten,” said Stephen Gallo, European head of FX strategy for BMO Capital Markets.

Adding to the concerns, data on Thursday showed German producer prices rose more than expected in September, as energy prices soared.

However, in a bright spot, Finnish banking group Nordea beat profit estimates, while Hermes added 1% after the Birkin bag maker saw a sharp pickup in sales growth with no signs of a slowdown.

Among other stocks, Swedish Match AB rose 2.1% after Philip Morris International raised its buyout offer for the nicotine products maker.

(Reporting by Amruta Khandekar in Bengaluru; Editing by Savio D’Souza, Subhranshu Sahu and Arun Koyyur)

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