European Markets in Bear Phase; Allianz Net Falls

Arthi Gupta
05 Aug, 2011
New York City

The European markets entered bear phase with the indexes in Italy, Spain and Switzerland hit 2-year lows and near 20% declines from the peaks. UK, France and Germany indexes are down 10% in the year on the growing inability of the euro-zone to tackle debt contagion. Allianz quarterly profit declined.

[R]1:30 PM Frankfurt – The European markets entered bear phase with the indexes in Italy, Spain and Switzerland hit 2-year lows and near 20% declines from the peaks. UK, France and Germany indexes are down 10% in the year on the growing inability of the euro-zone to tackle debt contagion. Allianz quarterly profit declined.[/R]

World markets plunged on fragile confidence and rising list of worries rooted in the U.S. economic weakness and the growing uncertainties in the euro-zone debt market.

Market indexes in Italy, Spain and Switzerland have entered in a bear market and in Germany, France and UK are in severe correction with losses between 12% and 16% since February.

World markets have been on an accelerated slide since July 22 after the bond yields for Italy and Spain began to rise and flirt above 6% level sparking deep fears that the contagion is spreading to larger nations in Europe.

In addition, the willingness of the Republican Party controlled U.S. House to hold the U.S. economy to hostage to meet their political objectives also put bond market on the alert. The U.S. is battling economic, financial, housing market and jobs crisis after excessive spending and costly wars in the Middle East.

The latest sell-off in New York was sparked after a string of weak economic reports in the manufacturing industry, jobs markets and persistent weakness in the housing market.

European indexes edged lower after European leaders called for an urgent meeting today on the fears of a contagion spreading to Italy and Spain. Rising Italian and Spanish bond yields have compounded the fears that both nations will be forced to ask for a bailout from the European rescue fund that may not be prepared.

Market indexes in Italy, Spain and Switzerland are down more than 20% since the peaks in February. For the year, the index in France is down 12%, in Germany 9.2% and in the UK 11%.

Italian index has plunged 26% from its peak in February and down 21% in the year.

EU Commission President Jose Manuel Barroso said in a letter to the leaders of the European Union that developments in the sovereign bond markets of Italy, Spain and other euro area member states are a cause of deep concern. He also called for a review of the European rescue fund.

German industrial production fell unexpectedly in June.

The market plunge in New York triggered a sell-off of similar proportion in Hong Kong, Tokyo and Sydney. The index in Mumbai declined 2.2%. Decline in commodities prices is also adding to traders’ woes with oil falling below $86 a barrel.

In Paris CAC-40 Index declined 16.87 to 0.53% to 3,303.48 and in Frankfurt DAX Index edged lower 137.54 or 2.16% to 6,276.03. For the week, the CAC-40 Index plunged 10.21% and the DAX Index plummeted 13.68%.

Standard & Poor's today confirmed the Republic of Ireland's long-term sovereign credit rating at 'BBB+' with 'stable' outlook. The 'A-2' short-term rating was also affirmed.

Reports published today show that second quarter economic growth in Italy improved slightly whereas it eased in Spain impacted by sovereign debt worries in the peripheral regions.

Italy's gross domestic product rose 0.3% on a quarterly basis in the second quarter compared to a 0.1% rise in the first quarter, the statistics office Istat said.

The Bank of Spain reported that growth in Spain eased to 0.2% on a quarterly basis in the second quarter from 0.3% in the first three months.

German Industrial Output Drops

Germany industrial production dropped unexpectedly in June, according to the report released by the Federal Ministry of Economy and Technology today.

Industrial output decreased 1.1% on a monthly basis in June, reversing the 0.9% rise in May.

Gainers & Losers

Allianz SE plunged 4.07% to €79.46 after the German insurer reported second quarter total revenues declined 3.2% to €24.6 billion from €25.4 billion in the prior year. Net income for the quarter decreased 8.3% to €1 billion or 2.17 euros per share from €1.09 billion or 2.37 euros per share last year.

Audi AG fell 1.4% to €565.00 after the German maker of automobiles stated car deliveries increased 16% to 106,000 in July compared to a month a year ago.

Delhaize Group SA slumped 7.400% to €43.550 after the Belgium-based food retailer reported second quarter revenues increased 3.9% at identical exchange rates and decreased 4.2% at actual exchange rates.

Drillisch AG plummeted 8.19% to €7.17 after the provider of telecommunications services reported second quarter sales fell 13.3% to €80.1 million from €92.4 million in the prior year.

Telecom Italia S.p.A. surged 6.17% to €0.85 after the Italian telecommunications company stated first-half revenues increased 10% to €14.54 billion from €13.22 billion a year ago.

Net loss during the period was €2.01 billion compared with net income of €1.21 billion a year earlier, impacted by goodwill write-down of €3.18 billion on domestic business.