Weak Banks Drag European Indexes

123jump.com Staff
02 Feb, 2009
New York City

European stocks fell after nervous investors worried about banks and earnings in the industrial sector. The euro edged lower and Russian ruble dropped to a 11-year low. A ratings downgrade for Barclays dragged banks in the region and most French banks dropped between 10% and 14%.

[R]6:00PM New York, 12:00 Frankfurt – European stocks fall as banks retreat. Euro weakens. Ruble falls to 11-year low after speculators test the government resolve to defend the currency.[/R]

European stocks fell for a third day as financial uncertainty weighed bank stocks and a deepening global slowdown affected forecasts of corporate earnings. The euro fell against major currencies.

Russian ruble declined to 11-year low against dollar as more exporters worry about currency control. The Bank Rossii indicated that it is comfortable at 41 ruble against composite of 55% dollar and 45% euro.

The continued decline in the currency is a sore point for the administration as crude oil prices keep falling in the international markets. Ruble dropped 0.9% against dollar to 36.04 and 0.45% against the composite of dollar and euro to 40.47 at close.

Market Sentiment

In London trading Barclays led the decliners retreating 11% after Moody’s Investors Service downgraded the UK lender’s credit rating from Aa1 to Aa3. The rating agency estimated that the lender may lose as much as £17 billion.

The Royal Bank of Scotland Group Plc tumbled 5.5%, while the Lloyds Banking Group Plc also fell. Last week’s gains were reversed by news that the Lloyds Banking Group Plc faces a record loss.

Copper and oil producers also fell. Xstrata dropped nearly 15% and BHP Billiton declined 8.5% after Macquarie lowered its view on the company and investors worried that the company may miss its earnings estimate due next Wednesday.

In Frankfurt the DAX index lower 67.31 or 1.55% to close at 4,271.04 but earlier dropped as low as 2.6% to 4,224.61 on weak corporate earnings expectations and on the worries that the government efforts to head off a recession may be inadequate.

Of the 30 index stocks, 5 gained and 25 declined.

MAN AG led the decliners in the index with a loss of 7% followed by losses in Commerzbank of 6.3%, in Deutsche Postbank of 5.6%, in Deutsche Bank of 5.4% and in Infineon Tech of 4.3%. Daimler AG and BMW declined 4%.

Metal producers led the retreat with Salzgitter AG and ThyssenKrupp AG, Germany’s leading steelmakers declining by more than 3% each.

Bayer AG and Volkswagen AG rose 1%.

In Paris the CAC 40 Index decreased 43.87 or 1.48% to close at 2,930.05 dragged down by bank stocks as the country’s three largest banks fell.

The largest French bank BNP Paribas SA plunged 14%, Credit Agricole SA, the second largest, slumped 7.4% and Societe Generale SA, the country’s third largest bank, retreated 4.9%.

Barclays credit rating slumps

Moody’s Investors Service downgraded Barclays Bank’s credit rating from Aa1 to Aa3 and its financial strength from B to C, as potential losses from credit write downs are expected to increase and affect its financial strength.

Barclays reported that it wrote-down credit assets worth £8 billion in 2008 and so far has declined to accept the government bailout funding which has diluted shareholders at other banks.

Recession Deepens in Euro Area

BDO Stoy Hayward LLP survey indicated that manufacturing confidence in the UK and Germany is on the decline. The business confidence is the lowest in Germany in the euro area despite lower interest rates and many companies are forecasting losses.

Euro Declines

The euro declined against 12 active currencies. One euro fetched $1.274 after it touched an intra-day low of $1.2706. Against the pound, one euro closed at 0.9015 pound.

The European Central Bank, which meets on February 5, is expected to cut its benchmark interest rate by a quarter percentage point.

Crude oil falls in New York

Crude oil dropped 2.3% in New York affecting oil companies. Royal Dutch Shell Plc, declined 2% and Xstrata declined 4.6% after copper slid on the Shanghai Futures Exchange.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 120.07 or 1.50% to 7,873.98, Hang Seng index in Hong Kong decreased 416.72 or 3.14% closed to 12,861.49, CSI 300 index in China higher 24.38 or 1.20% closed to 2,057.06. ASX 200 index in Australia decreased 43.30 or 1.22% closed to 3,497.40. Markets of Malaysia were closed today.

The Kospi Index in South Korea decreased 15.16 or 1.30% to close at 1,146.95. SET index in Thailand closed lower 9.84 or 2.25% to 427.85 and JSE Index in Indonesia decreased 22.02 or 1.65% closed to 1,310.64. The Sensex index in India decreased 357.54 or 3.79% closed to 9,066.70.

Europe Markets Review

In London FTSE 100 Index closed lower 71.86 or 1.73% to 4,077.78, in Paris CAC 40 Index decreased 43.87 or 1.48% to close at 2,930.05 and in Frankfurt DAX index lower 67.31 or 1.55% to close at 4,271.04. In Zurich trading SMI decreased 123.09 or 2.33% to close at 5,166.96.