Fundamentals

European Equities Retreat, Close Out Worst Week Since March

Europe Session Key Developments

•    Concerns Remain Over Sovereign Debt Problems in Greece, Spain, and Portugal
•    Preliminary German Industrial Production Numbers Disappoint for January
•    Commodities Trend Lower, U.S. Dollar Gains Against European Counterparts

European stocks fell for a third consecutive day, extending the biggest weekly decline since March, on sovereign debt concerns in the euro region.  Greece, Spain, and Portugal remained the biggest concern to investors as the countries attempt to reduce their budget deficits to acceptable EU levels.  Credit-default swaps on the sovereign debt of the three countries rose to record levels today, as the possibility of default continued to increase in the minds of investors.  Overall, the DJ Stoxx 600 has fallen nearly 9 percent from its yearly high on January 19.  On the economic docket, an unexpected decline in German industrial production for the month of December caught investors by surprise and pushed industrials and basic materials stocks lower throughout the region.  This also contributed to a decline in commodities, led by a near 2 percent drop in the price of crude oil towards $71 a barrel.  Gold and silver also declined slightly on the day, as the U.S. dollar rallied against its European counterparts.  The Euro fell over 0.3 percent against the greenback today, while the sterling dropped over 0.7 percent against the currency.  Looking ahead to Monday, the economic docket is relatively light and is unlikely to be market moving.  Switzerland will reveal its January unemployment rate and December retail sales, while the Bank of France will announce its business sentiment reading for the the current month.  The bearish sentiment may continue, however, as the European Union and International Monetary Fund determine whether or not Greece, Spain, and Portugal may need a lifeline to aid the countries in their debt problems.

FTSE 100                      5060.92                    -78.39                     -1.53%
British Stocks declined for a third day as financial and technology stocks plummeted over 2 percent each.  Every FTSE sector closed lower on the day and twelve stocks fell for each that gained on the index.  Lloyds Banking Group and Barclays led another broad decline in financial shares, as investors continued to sell off banking stocks on concerns over soverign debt problems in the euro region.  The FTSE 350 U.K. banks index fell over 1.8 percent on the day to its lowest close in six months.  On the commodities front, shares of BG Group fell over 3 percent on weaker energy prices and a reported 38 percent drop in fourth quarter profit for the firm.  The biggest loss on the index today was brokerage firm ICAP, which plunged over 19 percent after admitting that new businesses within the company were taking longer than expected to become profitable.

CAC 40                           3563.76                    -125.49                    -3.40%
Trading in Paris led to the biggest decline among the major European indices as the financials sector plunged nearly 5 percent.  Growing concern over debt problems within the euro region sent shares of BNP Paribas and Credit Agricole down at least 5 percent each, while Societe Generale fell over 4.1 percent.  French insurer Axa led the decline in financials, falling over 6 percent after its private equity unit announced that it is looking to sell its French laundry products manufacturer Spotless.  Furthering downside pressure today was weakness in the luxury goods market after Louis Vuitton announced that its net income fell 13 percent to 1.76 billion euros and fell short of analyst expectations.  Shares of the company dropped over 4 percent, while shares of rival company Christian Dior fell 4.5 percent on the day.

DAX                                  5434.34                     -98.90                     -1.79%
Shares on the DAX Index traded lower for a third consecutive day after a report that German industrial production fell 2.6 percent in December, far worse than the 0.6 percent rise expected.  Although production of consumer goods increased, there were major declines in other sectors such as motor vehicle production and machinery.  All nine DAX sectors fell as a result, led by a minimum 2 percent decline in basic materials, utilities, and industrials.  Infineon Technologies and Bayer fell more than 3 percent on the disappointing industrial production data, and shares of European carmakers BMW and Daimler also fell at least 1 percent each on the day.  German exchange operator Deutsche Boerse fell for a third consecutive day after Morgan Stanley cut its rating on the stock from “overweight” to “equal-weight” on Wednesday.

IBEX 35                        10103.30                    -138.40                   -1.35%
More selling pressure in Madrid pushed Spanish stocks to their lowest close since July.  The IBEX extended its weekly loss to nearly 7 percent today on weakness in commodities and technology stocks.  Wind-turbine manufacturer Gamesa posted a 4.6 percent decline, the largest on the index, just three days after Wind Energy America completed the commissioning of two Gamesa wind turbines in Iowa.  Furthering the decline in energy firms was Spanish oil company Repsol, fell 3.8 percent on declining energy prices.  On the technology front, information tech firm Indra Sistemas fell over 3 percent to 14.67 euros, the stock’s lowest close since June 2009.

FTSE MIB                     20815.88                   -588.94                  -2.75%
Italy’s FTSE MIB posted the second-largest decline of the major European indexes, falling nearly 3 percent on the day.  The most actively traded stocks in Milan included Assicurazioni Generali, which retreated over 3 percent after being downgraded on growth concerns, and Banca Popolare, which fell 4.4 percent.  Telecom Italia dropped over 4 percent after discussing a possible capital increase as part of its 2010-2012 business plan.

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