Eurpean Markets Fall 1.5% on Debt Worries and China Slow Down

Nigel Thomas
23 May, 2011
New York City

European markets accelerated sell-off after China manufacturing slow down added to market jitters. Ratings agencies downgraded debts of Italy and Greece and regional elections losses in Spain also unnerved investors.

[R]2:50 PM Frankfurt – European markets accelerated sell-off after China manufacturing slow down added to market jitters. Ratings agencies downgraded debts of Italy and Greece and regional elections losses in Spain also unnerved investors.[/R]

European markets opened lower and quickly accelerated losses. By the late afternoon the indexes in Germany, France and UK declined more than 1% and in Spain, Italy and Greece declined more.

The CAC 40 index fell 1.76% and DAX index declined 1.8%. Index in Milan dropped 3.7% and in Athens declined 1.9% and in Madrid eased 1.2%. Weak crude oil prices also dragged miners lower.

The regional election results in Spain, Greek sovereign debt worries and a slowdown in China’s manufacturing compounded the market jitters. The euro fell across all major currencies and traded at $1.4001.

Spain’s regional and municipal elections announced early Monday after counting 98% of ballots showed heavy losses for ruling Socialist Party to center-right Popular Party.

Prime Minister Jose Luis Rodriguez Zapatero led Socialist Party trailed in regional elections with only 27.8% of votes to 37.6% of votes won by Popular Party. Prime Minister Zapatero blamed his party’s defeat to the weak economic conditions and said he will not move forward the scheduled election next March.

Italian banks and insurance companies fell sharply after Standard & Poor’s lowered its view on the Italy’s debt rating of A+ to negative on the weakness in the government debt reduction targets. In addition, Fitch Ratings lowered debt rating of Greece.

Both rating actions lag the market perception and are generally ignored by market participants but stock investors sold stocks on the gathering storms in debt markets. Greek debt are expected to restructured and Italy is expected to pay higher interest rates at its three next debt auctions in the year.

Stock Movers

Stocks in Madrid declined after the results of regional and municipal elections. Banco Santander SA declined 1.1% and BBVA SA fell 2%.

Insurance companies declined on the sovereign debt worries. Aegon NV declined 3.1% and Swiss Life Holdings AG dropped 3%. Stocks in the sector were lower also after negative comments from analysts.

Commerzbank AG dropped 3.2% after the German bank priced its offering of 2.4 billion shares.

Credit Agricole SA declined 2.6%.

Airlines in Europe declined after a volcanic eruption in Iceland. The volcanic ashes are likely to reach UK domestic airspace as early as Tuesday.

Thomas Cook Group Plc dropped 3.7% and Air France-KLM fell 3.8% and the parent of British Air and Iberian, International Consolidated Airlines decreased 3.7%.

Luxury good makers declined after China prompted market decline in Asia. LVMH Moet Hennessy Louis Vuitton SA declined 2.2% and PPR SA fell 2.3%.