European Markets Drop 4%; BNP Paribas, Deutsche Bank Plunge

Nichole Harper
22 Sep, 2011
New York City

European market indexes dropped to 26-month low after the batch of latest economic data pointed more weakness. Greece offered more spending cuts and Italy lowered economic outlook. German growth nearly halts. Stada Arzneimittel plunged on one time charge. Automakers and banks fall.

[R]4:50 PM Frankfurt – European market indexes dropped to 26-month low after the batch of latest economic data pointed more weakness. Greece offered more spending cuts and Italy lowered economic outlook. German growth nearly halts. Stada Arzneimittel plunged on one time charge. Automakers and banks fall.[/R]

European benchmark indexes plunged at least 4% and dropped to a 26-month low as the latest economic data from Germany, China and Spain show weakening economic outlook. Italy lowered its economic outlook and plans more austerity measures.

The euro zone private sector continued its slide in growth in September and the outlook for the last month is weaker than the third quarter.

The banks were among the leading decliners after the European risk monitoring agency warned of rising risks to the financial systems in the euro zone and urged all authorities to take swift actions.

The market sentiment was weak after the U.S. Federal Reserve Chairman Ben S. Bernanke’s efforts to revive the faltering economic growth fell short of the market expectations.

The U.S. Fed plans to sell as much as US$400 billion of short term U.S. bonds and buy bonds of maturities of at least six years to bring down the long term rates. After the decision in late afternoon yesterday, U.S. 10-year bond yield fell to 1.85% from 1.93% and the yield of 30-year bond declined to 3.02% from 3.2%.

In addition, China’s Manufacturing Purchasing Index declined to 49.4 in September from final 49.9 in August. The data tracked by HSBC are a private estimate and the government estimate is expected next week.

The preliminary report showed manufacturing contraction for the third month in a row.

The index indicated shrinking manufacturing and soft landing in Chinese manufacturing and economic growth is expected to slowdown to between 8.5% and 9% in the second half from the 9.5% growth in the second quarter.

The Euro zone private sector registered first contraction in July 2009 according to the latest survey of purchasing managers by Markit Economics.

The preliminary estimate showed the index declined to 49.2 from 50.7 in August and the reading below 50 indicates shrinkage. The survey showed the decline in manufacturing and in services.

The index of services decreased to 49.1 from 51.5 in August and for manufacturing dropped to 48.4 from 49 in the month.

The two leading economies in the region, Germany and France showed weakening economic activities. German private sector growth declined for the eight month in a row and index was nearly at standstill at 50.8 from 51.3 in August.

Italian government lowered its economic outlook for the nation. The cabinet lowered its forecast for 2010 gross domestic product to 0.6% increase from the earlier 1.1% rise estimate.

In Paris, CAC-40 Index slumped 128.6 to 4.4% to 2,807 and in Frankfurt DAX Index edged lower 200.30 or 3.7% to 5,234.10.

Stock Movers

Cyclical stocks, banks and financial services related companies were among the leading decliners in the European trading.

BHP Billiton declined 7% to 1,758 pence and Rio Tinto dropped 9% to 3,094.50 pence in London trading.

BNP Paribas SA dropped 3.7% to 23.56 euros, Societe Generale SA plunged 7.8% to 15.62 euros and Deutsche Bank AG decreased 6.2% to 22.42 euros.

Deutsche Bank dropped after Chief Financial Officer Stefan Krause said that the bank is struggling to deliver on its promise of 10 billion euro in pretax operating profit in the current year.

Mediobanca Group closed up 1% to 5.56 euros but fell sharply earlier in the trading after the largest Italian bank wrote down its Greek debt holdings and its stake in a company that invests in Telecom Italia SpA.

Metro AG plunged 7.5% to 29.15 euros after the company extended its contract with the chief executive officer and reported by Financial Times Deutschland.

Volkswagen AG dropped 8.5% to 92.70 euros, Daimler AG plunged 8% to 32.58 euros and Porsche Automobil fell 7.9% to 32.06 euros

PSA Peugeot Citroen SA dropped 6% to 15.98 and Fiat SpA declined 5% to 6.06 euros after Moody’s lowered its credit rating on the holding group.

Stada Arzneimittel plunged as much as 19% before recovering to close down 7.7% to 17.35 euros after the drug maker announced a one-time charge of 97 million euros for unpaid bills from a Serbian wholesaler.