EU stocks suffer deep losses as US debt gridlock and Moody’s France comments add to investor concerns
City Index November 21, 2011 9:05 PM
<p>European stock indices suffered yet more deep losses on Monday as investors continued to flee risky asset classes on speculation that political gridlock in the […]</p>
European stock indices suffered yet more deep losses on Monday as investors continued to flee risky asset classes on speculation that political gridlock in the US could threaten the country’s attempt to cut its spiralling deficit, whilst fresh comments from ratings agency Moody’s on France also weighed on sentiment.
We have seen aggressive moves from investors to flee risky asset classes today and that means strong selling out of banking and mining equity positions. The selling forced the FTSE 100 lower by over 2% in early trade to hit a new six-week low, with much of the losses focused on banking and mining stocks, two sectors closely correlated to investor appetite for risk.
The situation on Capitol Hill is an unwelcome addition to the existing debt crisis and investor concerns. We can ill afford a return to the uncertainty that was created by the failure of political leaders in the US to agree terms for raising the debt ceiling over the summer and speculation that the congressional super committee charged with the task of cutting the spiralling deficit has failed to reach an agreement on how this can be done, unfortunately bears similar hallmarks to that.
That said, with the market not overly fearsome that deadlock in the super committee would lead to a ratings review, the eye of the debt storm remains in Europe, though the US development is an unwelcome addition to that storm.
Comments from ratings agency Moody’s that a deteriorating market climate with elevated borrowing costs and weakening growth prospects was a threat to France’s credit rating has also dampened sentiment. The comment is a shot across the bow for France and heightened sensitivity in French bond markets and the CAC, which is down by 2.4% today, shows that investors are beginning to become fearful over the longevity of France’s triple AAA credit rating.
The mining sector was the hardest hit sector in London trade, falling near 4% on the day, closely followed by heavyweight banks such as Barclays and Lloyds, whose share prices also suffered 4% falls.
Lloyds announced today that David Roberts would assume the role of interim CEO in the case that Antonio Horta-Osorio’s leave of absence for health reasons was delayed past Christmas. The part nationalised bank is attempting to instil some board transparency over shareholder fears of a power vacuum at the bank from the CEO’s absence and whilst the bank’s shares fell today tracking a weak banking sector, the reaction in the markets has not been hugely positive to the announcement.
News that Nathan Bostock had rejected the chance to run Lloyds’ wholesale division, favouring to stay at Royal Bank of Scotland in the eleventh hour, was also a bit of knock to the bank’s board.
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