Indexes in U.S. Europe Drop; Euro, Gold Weak

123jump.com Staff
04 Feb, 2010
New York City

European market indexes and the euro were under pressure after investors worried that Spain and Portugal have not done enough the meet EU deficit requirements. The benchmark index in Portugal dropped 4.2% and in Spain declined 3.5%.

[R]11:40 AM New York – European market indexes and the euro were under pressure after investors worried that Spain and Portugal have not done enough the meet EU deficit requirements. The benchmark index in Portugal dropped 4.2% and in Spain declined 3.5%.[/R]

World markets turned negative as economic data in Europe and Asia point a gloomier picture. Spain, Portugal and Greece led the decline in benchmark indexes in Europe. In Asia, Australia, New Zealand led the decliners.

European Central Bank left its key lending rate unchanged at 1% and the euro declined after investors sold bank stocks in Portugal, Spain, Greece and Hungary.

President Trichet at a press conference after the decision said that price pressures in the region “subdued” and the outlook for the region’s economic recovery remain “uneven” and grow at a “moderate” pace. Inflation expectations are expected to below 2% in the medium term.

In January, inflation increased to 1% from 0.9% in December.

He also noted that loans to private sector have not increased and annual growth in M3 supply has been -0.2% in December. He also said that growth in M3 and in credit growth is expected to ne “weak” in the short term. However, M1 money supply increased at 12% in December.

Euro zone is expected to face higher unemployment as capacity utilization is low and that will further crimp the consumption.

The Bank of England also kept its rate 0.5% and halted its plan to purchase government bonds after eleven months.

The PSI 20 Index in Lisbon dropped 4.2% and the IBEX 35 in Madrid fell 3.7% to the lowest level in six months. The benchmark index in Budapest fell 2.1%.

In Athens, Greece the largest trade union voted to strike on Feb 24 as the government increased the retirement age to lower the social security costs.

Investors are increasingly nervous and feel that the EU may have to provide financial assistance to a growing list of smaller nations. If these four governments do not trim budgets than the stability of the euro and economic union may come under pressure and if the EU regulators do extend financial help that raises the question of moral hazard.

At least for now, publicly EU regulators have offered their support to Greece and today the ECB President Jean-Claude Trichet expressed his “confidence” that Greece will take all the “decisions that are necessary” to reach the goal of 3% deficit by 2012.

Hungarian opposition party favored the win recent elections said that budgetary expectations are not realistic and deficit and government debts are going to be higher than expected.

In Australia, retail sales fell more than expected in December and New Zealand unemployment increased more than estimated. Unemployment jumped to 10-year high of 7.3%.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 48.35 or 0.46% to 10,355.98, and Hang Seng index in Hong Kong decreased 380.44 or 1.84% to 20,341.64, and CSI 300 index in China lower 11.91 or 0.37% to 3,218.80. ASX 200 index in Australia decreased 26.30 or 0.57% to 4,621.60. The FTSE Bursa KL Composite index in Malaysia was lower 2.12 or 0.17% to 1,265.03.

The Kospi Index in South Korea increased 1.40 or 0.09% to close at 1,616.42. SET index in Thailand closed lower 5.13 or 0.72% to 702.52. JSE Index in Indonesia decreased 11.33 or 0.43% to 2,593.22. The Sensex index in India decreased 271.10 or 1.64% to 16,224.95.