LONDON—Europe's financial markets plunged after a volatile, nervy open Tuesday, following another wave of stock selling in Asia, with investors focused on the U.S. Federal Reserve's policy meeting later in the global day. To say that the market will be watching closely "would go down as a great under-statement," said analysts at Rabobank, especially given Fed chairman Ben Bernanke's belief that the effectiveness of past quantitative easing can be seen in the buoyancy of stock prices. By 0830 GMT, London's FTSE 100 index was down 4.8%, the CAC 40 in Paris was down 3.8% and the DAX in Frankfurt had lost 7%; all had risen soon after the open. Despite a torrid Asia session Tuesday, which saw the Nikkei 225 index in Tokyo end down 1.7%, there was some relief, especially in the Australian market. There, stocks made a dramatic recovery from over 5% down to close 1.2% higher, while the Australian dollar climbed off a four-month low of $0.9927 to $1.0167 at 0810 GMT. Traders said that some profit taking on short positions in Asia, in currencies such as the Australian dollar, had led to some buying of risk currencies in Europe. The euro was at $1.4233 at 0810 GMT, well above the Asian low of $1.4152. Elsewhere, yields on Italian and Spanish sovereign bonds fell further early Tuesday after the European Central Bank bought the bonds of both countries for the first time Monday and then did so again Tuesday. Spanish 10-year yields dropped to 4.995%, according to Tradeweb, 0.21 percentage point tighter versus safe-haven German bunds. Italian 10-year bonds tightened 0.20 percentage point versus bunds to yield 5.14%. The ECB was widely expected to maintain its presence in the market to stop Italian and Spanish yields drifting higher again.
Access Investments-Building Awareness - European Union-ROMANIA
Tuesday, August 9, 2011
LONDON—Europe's financial markets plunged after a volatile, nervy open Tuesday, following another wave of stock selling in Asia, with investors focused on the U.S. Federal Reserve's policy meeting later in the global day. To say that the market will be watching closely "would go down as a great under-statement," said analysts at Rabobank, especially given Fed chairman Ben Bernanke's belief that the effectiveness of past quantitative easing can be seen in the buoyancy of stock prices. By 0830 GMT, London's FTSE 100 index was down 4.8%, the CAC 40 in Paris was down 3.8% and the DAX in Frankfurt had lost 7%; all had risen soon after the open. Despite a torrid Asia session Tuesday, which saw the Nikkei 225 index in Tokyo end down 1.7%, there was some relief, especially in the Australian market. There, stocks made a dramatic recovery from over 5% down to close 1.2% higher, while the Australian dollar climbed off a four-month low of $0.9927 to $1.0167 at 0810 GMT. Traders said that some profit taking on short positions in Asia, in currencies such as the Australian dollar, had led to some buying of risk currencies in Europe. The euro was at $1.4233 at 0810 GMT, well above the Asian low of $1.4152. Elsewhere, yields on Italian and Spanish sovereign bonds fell further early Tuesday after the European Central Bank bought the bonds of both countries for the first time Monday and then did so again Tuesday. Spanish 10-year yields dropped to 4.995%, according to Tradeweb, 0.21 percentage point tighter versus safe-haven German bunds. Italian 10-year bonds tightened 0.20 percentage point versus bunds to yield 5.14%. The ECB was widely expected to maintain its presence in the market to stop Italian and Spanish yields drifting higher again.
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9.42am: It just gets worse. The FTSE 100 just slumped by 277 points, or nearly 5.5%, to 4791. This was prompted by the news at 9.30am that British factory production fell unexpectedly in June, adding to a glut of disappointing news on the UK economy.
Manufacturing output fell by 0.4% in June, confounding the City's expectation of a 0.2% increase. Car production, chemicals, and paper and publishing all shrank.
Industrial output (which includes utilities and mining) fell 1.6% between April and June, worse than the ONS's earlier estimate of a 1.4% decline in the GDP figures.
Separate data released at 9.30am showed that the UK trade deficit was wider than forecast in June, at -£8.873bn. That is the largest gap in Britain's trade with the rest of the world since December. Not good news for the export-led recovery
Other European markets are in retreat - full round-up coming....
9.20am: Volatility in the stock market has also hit its highest level in two and a half years -- another sign of alarm.
The VIX, commonly dubbed the "fear index", has jumped by 15.4% this morning. It has now more than doubled since the start of the month.
9.01am: We're looking at another rout in the City, I'm afraid. The FTSE has tumbled 180 points, or 3.5%, to 4888 points.
Those early predictions of heavy losses are coming true. There's not a single riser on the FTSE 100 -- bank shares are in retreat. Barclays and Royal Bank of Scotland are down 6%.
Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, told us that those predictions of a strong Wall Street rally have been revised lower:
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