European Indexes Fall 4%; Deutsche Bank Plunges 9%

Bikram Pandey
05 Sep, 2011
New York City

Market indexes in Europe fell sharply and the German benchmark index declined to a two-year low after German Chancellor Angela Merkel controlled party suffered a defeat in a regional election. Banks led the decline on the worries after the U.S. is preparing to sue 17 banks.

[R]1:30 PM New York – Market indexes in Europe fell sharply and the German benchmark index declined to a two-year low after German Chancellor Angela Merkel controlled party suffered a defeat in a regional election. Banks plunged after the U.S. is preparing to sue 17 banks and seek compensation for misleading investors in the sale of mortgage securities.[/R]

The European market indexes declined sharply on the first day of the week with banks and resource stocks leading the fall.

Investors were unnerved after Italy appear to backtrack on its austerity plan of 46 billion euros and German voters handed fifth defeat to the ruling party in local elections in a row and Finland held firm on its demand for Greek collateral as a part of the bailout.

The market sentiment was negative after a string of negative reports. The U.S. added no new jobs in August prompting worries of the health of the largest economy in the world and the prospect of recession rose in the coming months. Also, the economic data in Europe were also painted a weak economic picture.

The U.S. added virtually no new jobs in August and private sector added only 17,000 new jobs. Hourly earnings and hours worked in the month also declined according to the latest data released by the Labor Department.

Retail sales in the euro-zone in July increased 0.2% from June but declined 0.2% from a year ago. The increase in retail sales was the second in a row but declined from a year ago and sales are still struggling to increase.

In addition, the markets were on the defensive in the UK and Germany after the U.S. is said to be preparing to seek a legal remedy from largest 17 banks for misleading investors in the run up to the housing market bubble and the sale of $196 billion of securitized mortgage bonds.

Banks plunged more than 5%. Deutsche Bank dropped 8.8% to 23.72 euros, Barclays fell 4.7% to 157.39 pence, HSBC Holdings declined 3% to 508.9 pence, Societe Generale plunged 8.6% to 20.25 euros and BNP Paribas declined 6.3% to 31.30 euros. Commerzbank AG dropped 5.9% to 18.10 euros.

The European banks were on the defensive after German negotiators canceled their meeting with Greek counterparts as both parties failed to agree on terms of collateral.

Market indexes in Germany declined after Chancellor Angela Merkel controlled party suffered an election defeat in Mecklenburg-Western Pomerania region and won only 23.1% vote, trailing behind 35.7% won by the Social Democrats.

BASF AG declined 5.6% to 44.46 euros after its Swiss competitor lowered its revenues and margin target. Clariant revised its sales outlook for the current year to between Sfr 7 billion and Sfr7.2 billion and margin estimate to 12.8% to 13.2% from the previous estimate range of 13.5% to 14.5%.

Markets in Asia plunged more than 2% after the U.S. added no new jobs in August. Economists were anticipating at least an addition of 60,000 jobs in the month. The weak employment picture worried investors and export sensitive companies in Hong Kong and in Tokyo fell sharply.

The benchmark index in Korea led the region with a loss of 4.4% and the indexes in Australia declined 2.4% and in Tokyo fell 1.9%. The market indexes in Hong Kong fell nearly 3% and in Shanghai and Singapore declined more than 2%. The index in Mumbai eased 0.6%.