Fundamentals

European Equities Plunge on Debt Concerns

Europe Session Key Developments

•    Concerns Growing Over Debt Problems in Greece, Spain, Portugal
•    Bank of England and European Central Bank Maintain Low Interest Rates
•    Commodities Plunge Lower, U.S. Dollar Gains Against European Counterparts

European stocks plunged by the most in two months, led by a near 6 percent loss for the Spanish IBEX 35 Index.  Spain has come into the spotlight, alongside Greece and Portugal, on fears that the debt levels of the three nations are unacceptably high and may threaten the broader European Union.  While bond prices rose for nearly all major European nations today on risk aversion, demand for Portuguese and Spanish debt decreased, pushing prices down and yields higher.  Just one day after a disappointing Portugal bond auction, Spain sold 2.5 billion euros of three-year debt today to yield 2.63 percent, 49 basis points higher than the last issuance of such notes on December 3.  Investor also caused a surge in the cost of insuring debt from the troubled nations against default.  Credit-default swaps on Portugal increased 27 basis points to 223, swaps on Greece rose 14 basis points to 411, and swaps on Spain increased 13 basis points to 165.  The debt concerns greatly overshadowed the European Central Bank’s rate decision this morning that held the benchmark interest rate, as expected, at 1.00 percent.  At President Jean-Claude Trichet’s media briefing, the discussion quickly turned towards the at-risk euro area nations.  The ECB President defended the Euro-Zone as a whole, saying the region remained strong despite its troubled components.  He added that the budget shortfall of the region will probably be smaller than those of Japan and the United States at the end of the year.

FTSE 100                      5139.31                    -113.84                     -2.17%
Following the Bank of England’s decision to maintain its benchmark interest rate at 0.50 percent, British stocks fell over 2 percent on renewed debt concerns in the European Union.  Each FTSE sector fell on the day, with the exception of Telecommunications, and nineteen stocks fell for each that gained.  Commodity stocks were hit especially hard today as the price of crude oil fell from back below $74 a barrel after closing above the $77 level following yesterday’s session.  Royal Dutch Shell dropped over 2 percent after its fourth-quarter earnings missed estimates, although Bank of America Merrill Lynch maintained a “buy” rating on the stock.  Telecommunications stocks were the lone bright spot today, led higher by Vodafone, which added over 3 percent on the day.  The world’s largest mobile operator by sales increased its operations in India and lifted its revenue outlook.

CAC 40                           3689.25                   -104.22                    -2.75%
French equities plunged lower today as all forty CAC stocks fell into the red.  Bank stocks Societe Generale, Credit Agricol, and BNP Paribas were the worst performers of the index, each dropping over 5 percent on debt concerns in the EU.  Software companies also took a hit today after Access Commerce and Soft Computing slid 5 percent and 9 percent respectively.  Access Commerce announced that revenue fell in 2009 from the year prior, while Soft Computing reported that fourth quarter revenue fell 6.7 percent.  Dassault Aviation was one of the few gainers on the CAC today, adding over 3 percent after Brazilian President Luiz Inacio Lula da Silva announced his intentions to buy over thirty of the company’s fighter jets.

DAX                                 5533.24                    -138.85                  -2.45%
Trading in Germany led to a steep decline today after factory orders in December fell far short of expectations.  The worst performing sectors were Industrials, Basic Materials, Financials, and Consumer Goods on a day in which all 30 DAX stocks closed lower.  Deutsche Bank, the country’s largest bank, fell over 4 percent after CEO Josef Ackermann said that the economic recovery remains fragile and “by no means self-sustaining.”  Commerzbank also declined, by the largest amount since October, while steelmakers ThyssenKrupp and Salzgitter fell at least 3 percent each on falling metal prices.

IBEX 35                       10241.70                   -646.70                 -5.94%
Spanish stocks plunged today by the most in sixteen months on continued concern over the country’s debt problems.  Financial firms led the decline, falling over 8 percent collectively on concerns that the country’s credit rating may be cut.  Banco Santander, the country’s largest bank, fell over 9.4 percent despite a report of increased earnings.  Industrial shares were not far behind Financials, dropping over 6.8 percent on the day.  Ferrovial, an infrastructure managing firm, fell over 11 percent, while Obrascon Huarte Lain dropped over 9 percent.

FTSE MIB                     21404.82                   -764.43                 -3.45%
Trading in Milan today led to the largest decline for Italy’s benchmark FTSE MIB Index since November 26.  Some of the biggest movers on the index were utility firm A2A, which fell over a percent on decreased earnings, and insurance giant Assicurzioni Generali, which dropped over 4 percent after cutting its 2009 net income estimate.  Telecom Italia, the country’s largest phone company, declined nearly 2 percent as CEO France Bernabe met with government officials regarding a potential merger with Spanish telecom giant Telefonica.

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