European stocks edged lower on Monday, adding to last week's retreat, as mounting violence from Iraq to Kenya weighed on travel shares and prompted investors to cash in on recent outperformers. Airline easyJet and cruise operators Carnival both fell more than 1 percent as Brent crude rose to nearly $113 per barrel on concerns over disruptions to oil exports from Iraq, the second-largest Opec producer.
Sunni Islamist insurgents have routed Baghdad's army and seized the north of the country, threatening to dismember the state and unleash all-out sectarian warfare across a crescent of the Middle East. While airlines tend to lock in prices for their immediate fuel needs using financial derivatives known as hedges, higher oil prices in the coming months would affect future profits.
"Most of the major European airlines are around 65-80 percent hedged for the remainder of the current financial year," Goodbody Stockbrokers analyst Jack Diskin said. "If oil prices stay at these levels, the cost of hedging ... will become more expensive and that will impact their performance next year."
The STOXX Europe 600 Travel & leisure index fell for a fourth straight session, also pummelled by last week's profit warning from Lufthansa. Underscoring bearish sentiment on the sector, Wizz Air, central eastern Europe's largest airline, shelved plans to list its shares on the London Stock Exchange on Monday, citing current market volatility in the airline business.
The FTSEurofirst 300 index of top European shares shed 0.4 percent to 1,383.95 points, retreating further from a 6-1/2 year high hit last week. The euro zone's blue-chip Euro STOXX 50 fell 0.7 percent to 3,261.42 points. French engineering group Alstom extended losses in late trade after Germany's Siemens and Japan's Mitsubishi Heavy Industries (MHI) presented a joint offer to the French firm, challenging a General Electric bid. The US firm was quoted as saying it would not engage in a bidding war.
"It's not a bid for the entire company ... and GE just said it won't engage in a bidding war," a London-based event-driven analyst said. "Overall there's nothing overly positive about today or anything we wouldn't expect." Italy's Telecom Italia fell 4.2 percent to the bottom of the FTSEurofirst after shareholder Mediobanca said it would quit an investor pact which controls the phone company, paving the way for a possible sale of its stake.
Telecom Italia's shares had risen nearly 50 percent in six months, benefiting like banks from improving market sentiment towards southern European economies and policy easing measures from the European Central Bank earlier this month. Swiss biotech group Actelion Ltd bucked the trend, surging nearly 15 percent after it said an experimental heart and lung drug met its primary goal in a study, giving it a potential second big seller.
Trading volume on Actelion was brisk at eight times its average for the past three months, compared to FTSEurofirst volume 20 percent below its own average. Investors were also rattled by violence in Kenya, where at least 48 people were killed and others wounded when more than two dozen unidentified gunmen attacked a coastal town overnight.
Elsewhere, Russia cut off gas to Ukraine in a dispute over unpaid bills that could disrupt supplies to the rest of Europe and set back hopes for peace in the former Soviet republic. The cost of insuring against future swings in euro zone bluechips, as measured by the Euro STOXX volatility index, rose 8.6 percent, up for a fourth straight session, although it remained low in historical terms at around 15 points. "Geopolitics is driving the market again, with worrying news coming from Iraq, but also Kenya and Russia," said Guillaume Dumans, co-head of research firm 2Bremans. "Overall, there's a lack of positive momentum since the ECB meeting."
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