European stock markets were lower on Monday as Brexit concerns and the impact of recent comments from President-elect Donald Trump fuelled a risk-off narrative among investors, while U.S. markets were closed for Martin Luther King day.
Banks were the big losers all around in a session that brought an end to the longest run of gains in history for London's FTSE 100 index as investors responded to speculation over the weekend that Prime Minister Theresa May is increasingly leaning toward a so called hard Brexit.
Added to Brexit worries were concerns over the impact that incoming President Donald Trump could have on U.S. diplomatic relations and political stability across the globe.
The president-elect has repeatedly taken aim at China with threats to abandon the long standing 'one China' policy, which sees the U.S. refuse to recognise Taiwan as an independent nation, drawing threats and angry rebukes from Chinese state media.
The latest round of such comments were followed up at the weekend with a volley of verbal ordinance directed at the German car industry, that saw the president-elect threaten a 35% border tax on the companies that manufacture cars in Mexico for the U.S. market.
Compounding market concerns over politics, Canadian ratings agency DBRS cut the Italian sovereign credit rating to BBB, the final step above the junk threshold on Monday. It said the decision was due to concerns over the nation's future political path, the stability of its financial system and an already fragile economy.
The FTSE 100 dropped 0.15% on Monday, to close at 7,327, breaking a fourteen day stretch of continuous gains that saw the index post twelve record closing highs. Its mid market sibling, the FTSE 250 index, closed 0.36% lower at 18,305. Big fallers in London were banks such as RBS (RBS) and Lloyds Banking Group (LYG) , down 2.6% and 2.1% respectively.
In Germany the DAX index fell by 0.64% to 11,554 and in France the CAC 40 dropped 0.82% to close to 4,882. Deutsche Bank (DB - Get Report) and Commerzbank (CRZBY) were the biggest fallers on the DAX, down 2.8% and 1.9% respectively.
In France Vivendi (VIVHY) was among the top fallers after telling investors that it recently handed over more than €1 billion to buy a 25.7% stake in privately owned broadcaster Mediaset. The stock dropped more than 2.5% in response to the news.
European currencies were mixed; sterling slumped more than 200 pips against the U.S. dollar at the beginning of Monday's Asia session, but it pulled back 75 points to trade at 1.2050 before stock markets closed in London.
The euro closed around 25 pips lower against the greenback, to change hands at around 1.0595, after a deluge of news that all hit sentiment toward the currency.
The common currency's woes began with President-elect Trump praising the U.K.'s vote to leave the EU, in an interview with the German press, and predicting that it would not be the last country to depart.
Trump also pledged a swift trade deal following an eventual Brexit, which might be seen as adding to the risk that other countries eventually take the view feel they too could depart the block. This came on top of an attack on German car makers and the Italian ratings downgrade.
French ten year yields were higher by 4 basis points at 0.80% by the close. U.K yields were flat at 1.32% and German yields were up by 1 basis point to 0.32%. Italian yields were 3 basis points lower at 1.89%.