Fundamentals, Uncategorized

European Equities Falter to Lowest Close Since December

Europe Session Key Developments

•    Financial Sectors Across Europe Under Fire on Regulation Concerns
•    German Consumer Prices Fall More Than Expected in January
•    Commodities Continue Slide, Dollar Gains Against European Currencies

European stocks retreated for a second session this week, falling to levels not seen since mid-December.  Although there was no major event risk to depress sentiment, prior concerns regarding government regulations and upcoming central bank decisions drove stocks lower.  Just last week, U.S. President Barack Obama spooked investors by proposing new regulations on U.S. banks and Chinese leaders ordered some of their own big banks to curb lending for the rest of the month.  Today, French President Nicolas Sarkozy came out in support of Obama’s banking regulations and suggested further discussion by the G-20 regarding the proposal.  Overall, the government speak resulted in marketplace uncertainty and drove “riskier” assets such as stocks and commodities lower.  On the currencies front, the Euro and British Pound both fell against the greenback as the U.S. Dollar Index rose to its highest level since September.

FTSE 100                      5217.47                   -59.38               -1.13%
British stocks fell for the fifth time in six days, as the Financials sector and Commodities sector declined over 1.7 percent each.  The overall decline in British banking stocks could be largely attributed to investor fears that future regulatory measures will reduce industry profits.  On the commodities front, mining stocks and commodity producers continued their declines from last week due to falling prices for energy products and precious metals.  Tullow Oil dropped over 4 percent today after raising nearly 1 billion pounds in a share sale to fund exploration in Africa.

CAC 40                           3759.80                   -47.24              -1.24%
Trading in Paris today resulted in over a one percent drop despite positive economic data that showed a decrease in December jobseekers and better-than-expected consumer confidence in January.  A 2.1 percent decline in the technology sector dragged the index lower, as seven stocks fell for each that gained.  Tech stocks fell after STMicroelectronics posted a fourth quarter net loss.  Shares in the Geneva-based company fell over 4 percent on the day.

DAX                                 5643.20                   -25.73                -0.45%
German stocks were the best performers of Europe’s major indices, despite 25 of the 30 DAX stocks closing lower on the session.  Deutsche Bank and Commerzbank, Germany’s largest financial institutions, slipped at least 1 percent each on concerns over global banking regulations.  Morgan Stanley also declared that Deutsche Bank will probably reduce its dividend payments if regulations go forward.  Steelmakers ThyssenKrupp and Salzgitter declined alongside metal prices, while carmakers Bayerische Motoren Werke and Daimler on concerns over the economic recovery and future demand for automobiles.

IBEX 35                       11042.20                   -305.10                 -2.69%
The Spanish index fell by the largest amount since August, led by a near 5 percent plunge in banking stocks.  Banking giant BBVA fell over 6 percent after reporting a 94 percent drop in fourth-quarter net profit to 31 million euros for the period.  BBVA’s massive profit loss, due to increased provisions for bad loans, weighed on the entire banking sector including Banco Santander, which also dropped over 5 percent on the day.

FTSE MIB                     21977.59                  -410.12                 -1.83%
The Italian index fell nearly 2 percent today, its second loss thus far on the week.  Financial stocks were hit particularly hard after Morgan Stanley cut its dividend estimates for Intesa Sanpaolo SpA and UniCredit SpA.  Shares of Intesa and UniCredit fell 2.9 percent each.  Banco Popolare also fell significantly after Credit Suisse Group reiterated its “underperform” recommendation on the stock.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com