EU markets lose almost 1% as correction fears loom

<p>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 […]</p>

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

 

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.