Banking Worries Batter Eurozone Stock
By Financial Times
Thursday 12:30 BST. European stocks have been slammed into reverse as worries about the Irish banking system return to haunt investors already put on edge by weak eurozone data and nagging fears about the implications of the Federal Reserve‘s hint at further monetary easing.
The FTSE All-World index is down 0.4 per cent and core sovereign debt is in demand, pushing yields lower, as traders seek perceived havens. S&P 500 futures are down 0.7 per cent, suggesting Wall Street’s benchmark will open below the 1,130 support/resistance level.
The dollar is also attracting funds, following its drop to 6-month lows in reaction to the Fed’s pledge on QE, while gold appears poised to strike at $1,300 an ounce.
The European session had begun with modest gains as a swath of holidays in Asia ensured the global trading day started with a whimper.
The FTSE Eurofirst 300 fell 1.5 per cent in the previous session, with financials leading the sell-off, as investors worried about the dour message the Fed was in effect sending regarding the health of the US economy when it left the door open for more quantitative easing.
Those concerns are clearly lingering today – and they were distilled by reports showing growth in Germany’s manufacturing and service sectors slowed more than expected in September.
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However, selling really kicked in as traders picked up on a report from the Irish Examiner that said Ireland’s finance minister Brian Lenihan “has given the strongest indication yet that the riskiest lenders to Anglo Irish Bank will soon be told they will not get all their money back”.
News that Ireland’s GDP fell 1.2 per cent in the second quarter added to the concern, as did rumours of a default by Allied Irish bank. It should be stressed there has been nothing to suggest the latter is anything other than market scuttlebutt at this stage.
The Eurofirst is now down 0.7 per cent, with banks off 1.2 per cent. London’s FTSE 100 is down 0.9 per cent with the heavyweight sectors that were initially in the black – oils, financials, and miners – all turning tail.
Factors to Watch. US weekly initial jobless claims are likely to be the premier datapoint on Thursday, followed by leading indicators for August and last month’s existing home sales.
Forex. The US dollar index, which tracks the buck against a basket of its peers, is off the six-month lows it hit on Wednesday after investors speculated Fed governor Ben Bernanke would flick the greenback “printing” switch. The DXY, as the gauge is known, is up 0.4 per cent to 80.12 as traders flee the euro on the revived banking concerns.
The single currency is down 0.5 per cent versus the dollar to $1.3321 and lower by 0.6 per cent relative to the yen at Y112.44. The yen is up 0.1 per cent versus the dollar at Y84.42, and is now almost 1.5 per cent stronger than it was in the immediate aftermath of Tokyo’s intervention last week.
Rates. US Treasury yields are adding to the sharp falls over the past two sessions on hopes the Fed would buy more bonds as part of any quantitative easing programme. The 10-year benchmark yield is down 3 basis points at 2.53 per cent on haven flows.
Worries about Ireland is spooking the eurozone peripheral sector, pushing yields higher. The Irish 10-year note is dropping, pushing yields up 19 basis points to 6.53 per cent, a new euro-record, while the nation’s credit default swaps have also hit a fresh record high of 500 basis points.
As investors flee peripherals they move into the core, forcing yields on 10-year Bunds down 5bp to 2.29 per cent. German paper is also benefiting from news Berlin will cut back on planned issuance as better than forecast growth eases budget pressures.
Commodities. Gold seems poised to pounce upon the $1,300 an ounce level as fears over a bout of competitive currency revaluations drive some investors into the metal. The bullion is up 0.1 per cent at $1,291, just shy of Wednesday’s intraday nominal high of $1,296.1. Silver is just holding on to the $21 an ounce mark, having earlier hit a two-and-a-half year peak of $21.21.
Industrial metal prices are a touch stronger, quite surprising given the risk aversion elsewhere. Copper is up 0.5 per cent to $7,882 a tonne, close to its 5-month high. Oil is succumbing to the “risk-off” trade, dropping 0.8 per cent to $74.13 a barrel.
Asia-Pacific. Tumbleweed blew across the trading rooms of the region as China, Hong Kong, Japan and South Korea were closed for various national holidays. Those exchanges that were open inherited scant fresh drivers from Europe and the US overnight, other than the reverberations from the Fed’s policy statement.
Sydney benefited from the previous session’s jump in metal prices, pushing miners higher and helping the S&P/ASX 200 to a 0.2 per cent advance. The FTSE Asia-Pacific index is down 0.1 per cent.
Americas. On Wednesday in New York the S&P 500 lost 0.5 per cent, weighed down by a poor showing in the technology sector after traders reacted negatively to a profit warning from Adobe and after a dividend increase by Microsoft was deemed inadequate.
In Canada, a rally by gold miners could not overcome the downdraft from financials after a report showed retail sales fell in July, and the S&P/TSX composite index finished down 0.2 per cent.
The FTSE Latin America index rose 0.3 per cent as the heavyweight Brazilian market bucked the regional trend, the Bovespa up 0.9 per cent, despite another 1.4 per cent fall in Petrobras ahead of the energy giant’s $79bn share sale later today.
Follow the market comments of Jamie Chisholm in London and Telis Demos in New York on Twitter: @JamieAChisholm and @telisdemos