LONDON — Losses on Europe’s major indexes widened after German Chancellor Angela Merkel said she was not prepared to hold informal talks with Britain before it formally triggers its exit process from the European Union.
By mid-morning on Monday, Europe’s markets had pared some of the losses incurred from the post-Brexit referendum result on Friday. By the close, losses were steeper, with bruised retail and luxury stocks taking a further pummeling.
The FTSE MIB in Milan, which has so far felt the biggest shock from Britain’s decision to exit the EU, was down 3.9 percent to 15,103.58, followed by the DAX in Frankfurt and the CAC 40 in Paris, 3 percent to 9,268.66 and to 3,984.72 respectively. The FTSE 100 in London was down 2.6 percent to 5,982.20.
The euro traded at $1.11, while the pound held steady at $1.37, and the Swiss franc equaled $1.03. Earlier on Monday, the pound hit a 31-year low against the dollar for the second time in less than a week.
After the markets’ close, the U.K. suffered a further blow as Standard & Poor’s downgraded the country’s credit rating from AAA to AA, citing a raft of financial risks posed by Britain’s future exit from the EU. S&P follows Moody’s in downgrading the country’s credit rating, potentially making it more expensive for the government to borrow money.
Some British politicians had hoped to hold informal talks with EU leaders before the U.K. formally declares its intention to withdraw from the union, which is expected to be in early October. After making that declaration, per Article 50 of the Lisbon Treaty, the U.K. will have a two-year window to disengage itself from the EU.
“There cannot be any informal negotiations until we get that message from the U.K.,” said Merkel, referring to a formal communication from the British prime minister about Article 50.
Retail and luxury stocks took a hammering, watching their mid-morning losses widen into double-digit percentages. The worst hit included SuperGroup, parent of Superdry, which was down 20 percent to 11.84 pounds; Primark parent Associated British Foods, 15.3 percent to 23.50 pounds; Italia Independent Group, 16.6 percent to 9 euros; Marks & Spencer Group, 12.6 percent to 2.85 pounds, and Ted Baker, 18.3 percent to 21.24 pounds.
Many brands that source and manufacture in Asia will take a further hit in the coming months due to the weaker pound and ongoing fears that Britain will fail to negotiate favorable trade agreements with the EU and other countries.
The only major stock on the upswing was Mulberry, which closed ahead 4.8 percent to 10.25 pounds, building on gains throughout the day. Mulberry manufactures about half of its bags in the U.K. at its factories in Somerset, England, which allows it to control costs, supply chain and time to market.
While Mulberry’s chairman Godfrey Davis declined to take a public stand on Brexit, he told WWD shortly before the vote: “At the end of the day, it will be what it will be, and we think we’re well-placed to succeed, whatever the outcome.”
Earlier on Monday Luca Solca, managing director at Exane BNP Paribas, said in a report that the depreciation of the euro and the pound versus the dollar over the last few days would have an “almost negligible” impact on most of its top-line growth forecasts for European luxury goods firms.
He said Burberry will likely benefit the most, with foreign exchange earnings before interest and taxes tailwinds set to be in the double digits, “all else being equal” and with the current value of the pound. He added: “We have reservations that the pound will continue to stay this weak as the year advances, as we see Brexit as more of a threat to the EU and the euro, than to the U.K. itself,” he said.
Taking a one-year view, Solca said the referendum result will likely bring a spike in uncertainty, an adjustment of currencies, and a decline in asset markets. Like most other industry observers, Solca’s team also sees damage to consumer and corporate confidence, with consumers postponing expenditure and corporates postponing investment.
They also foresee global GDP growth correcting downward and a higher risk of recession. The euro and the pound will likely remain weaker compared with the dollar over the next few months, he said, adding that Swiss brands are likely to suffer a “double whammy, from the macroeconomic situation and from an appreciating Swiss franc.”