European stocks opened firmly in the red Monday following a cautious session in Asia as investors focused on a raft of merger and deal activity and adjusted currency positions in advance of a near-settled rate hike from the U.S. Federal Reserve.
The region-wide Stoxx 600 Europe Index fell 0.75% to 372.42 in the opening 45 minutes of trading but still remained within shouting distance of its 52-week highs as bank shares weighed on benchmarks around Europe. Germany's DAX index was the standout decliner, falling 0.65% with the help of a steep -- but by no means catastrophic -- selloff for Deutsche Bank AG (DB - Get Report)
Deutsche Bank fell 5.5% in Frankfurt to €18.20 each after Europe's biggest bank confirmed it will raise around €8 billion ($8.5 billion) in capital from shareholders and plan the partial sale of its asset management business.
The stock, however, has been one of the best performing bank shares in Europe in the second half of 2016, rising more than 78% from its all-time low in September and gaining more than 38% since the U.S. elections in November compared to a 12.18% advance for the Stoxx 600 Europe Banks Index.
France's CAC-40 was also in focus, with its 0.5% slide overshadowed by a solid 2.9% advance for PSA Pegout SA (PEUGF) , which said Monday that it has purchased General Motors' (GM - Get Report) Opel subsidiary and the captive financing units of the carmaker's European brands for a total of €2.2 billion.
Britain's FTSE 100 was also active with merger news as the benchmark slipped 21.5 points, or 0.3%, despite gains for Aberdeen Asset Management (ABDNY) and Standard Life (SLFPY) following thier £11.5 billion ($13.5 billion) all share tie-up that will create Europe's second-biggest asset manager.
Aberdeen shares surged 5.34% to 301.5 pence while Standard Life shares gained 6.71% to change hands at 404 pence each.
Overnight in Asia, geopolitical tensions and concerns over the pace of China's economic growth held down share indices for most of the session, with Japan's Nikkei 225 falling 0.46% to 19,379.14 points. The region-wide MSCI Asia ex-Japan index, however, was marked 0.39% higher by 06:45 GMT.
Traders bid up U.S. Treasuries, the yen and other safe-have assets on reports that North Korea had fired four ballistic missiles close to Japan's northwest coast in what Prime Minister Shinzo Abe called an "extremely dangerous action" that is a "violation of UN Security Council resolutions."
Investors were also rattled by downgraded growth forecasts for China' economy after Premier Li Keqiang told parliament during the National Peoples' Congress that the government would work towards maintaining a 6.5% GDP growth rate this year, lower than the 6.7% pace anticipated by analysts.
The Dow Jones Industrial Average closed out Friday with its fourth straight of gains, powered higher by the Federal Reserve's confidence in the U.S. economy.
The Dow ended the week 0.88% higher, the S&P 500 rose 0.67%, and the Nasdaq climbed 0.44%. All benchmark indexes clocked fresh all-time highs on Wednesday, enjoying their best one-day performance of the year.
The Dow exceeded 21,000 for the first time in history on Wednesday, having reached 20,000 in late January. It took only 24 days to move from 20,000 to 21,000, the fastest move between milestones since the Dow moved from 10,000 to 11,000 in 1999.
Fed Chair Janet Yellen fueled the chances of a March rate hike on Friday afternoon after arguing it would "likely be appropriate" to make a move later this month.
"At our meeting later this month, the Federal Open Market Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate," Yellen told an audience at the Executives' Club of Chicago on Friday afternoon. Yellen also said current conditions support three rate hikes this year.
With rate hikes all but settled now for the March 15 meeting, traders pared U.S. dollar gains, taking the dollar index, a measure of the greenback's strength against a basket of global currencies, modestly lower to 101.37 by 06:45 GMT.
Early indications from U.S. equity futures point to a 73 pullback for the Dow at the start of trading on Wall Street Monday, with 11 points taken back from the S&P and 22.1 points from the Nasdaq.