EU markets lose almost 1 as correction fears loom

European indices lost almost 1% on Friday’s trade as insurers weighed on concerns over exposures to the Japanese earthquake and subsequent tsunami, whilst the worst trading day for the Dow Jones in seven months and failure of near-term support levels also heightened fears that a wider market correction could be looming.

Correction looming?
The fact that the Dow Jones posted its worst session in the last seven months locked in a negative start for European equities and has continued to trigger flights to safe haven asset classes by investors. The Dow Jones closed below the psychologically important 12,000 level but just above crucial support levels of 11980. A close below this level in this afternoon’s session could map out a wider correction for both US and European indices.
We have the FTSE 100 below support levels of 5824 and a close below this would certainly raise eyebrows for bull enthusiasts. The UK index has now lost 4% in the last five trading days and has hit a new 13-week low in the process. A weaker close today could certainly open the doors for a correction of around 10% over the next few weeks unless today’s falls entice bargain hunters back into the fray.

Moreover, with the political unrest spreading across the North African region to the Middle East with Saudi Arabia now seeing mass protests, traders remain on the cautious side despite the prices of crude retracing somewhat over the last few days.
Should a similar situation to that of Libya spread to Saudi Arabia, the effect of the price crude oil and investor sentiment could be quite horrendous given the importance of the country to the world’s oil supply. As a result, traders are naturally edgy.

Insurers hit by the Japanese quake
Sector wise, it is the insurers that have been worst hit by the weaker session today as traders fretted about likely exposures to the Japanese earthquake and tsunami. Insurers have seen strong bullish price movements lately, with the sector rallying nearly 30% since the start of December last year. The destruction in Japan is convincing investors to cash in some of their gains in insurance firms, particularly considering that it is too early to know exactly what liabilities will be placed on firms as a result of the destruction caused in the region and surrounding areas just yet.

As a result, Aviva and Legal and General shares have been hit the hardest in London, with both shares falling as much as 2.3% in early trading