European markets lose ground worst quarter for FTSE since 2002

European markets lost ground on Friday as investors sold out of heavyweight banking stocks, forcing the FTSE 100 lower by 2% going into the close, whilst the DAX and CAC both fell over 2%.

Banks have been the focus of the selling today as investors became concerned over a property market correction in China, which could have long lasting consequences for banks who have high lending exposures in the region. In Asian trading early this morning banks weighed on exposure concerns and in London trading today, we have seen Standard Chartered and HSBC, the two banks with large operations in Asia, both weighing with their respective share prices, falling 4% and 5%.

Luxury goods retailers have also seen negative share price swings today in reaction to China as shareholders continue to become concerned that the region’s high demand for luxury items is starting to wane amidst a slowdown in economic activity. Burberry shares lost another 5% today, meaning that the retailer’s share price has lost 16% in just three days trading. Similarly bearish moves were seen for peer luxury goods makers Swatch Group and Richemont.

With today’s session marking the end of the quarter, we have also seen a number of investors looking to settle and re-evaluate their portfolios for the quarter end, which has most likely also exacerbated today’s choppy session and equity declines.

Mining shares continued to drag the FTSE 100 lower also, with the sector losing another 2%, meaning that all of Tuesday’s strong bounce in mining shares had been eradicated by the week’s end.

The afternoon session saw economic data out of the US take focus. Personal Income fell for the first time in nearly two years in the US last month, falling -0.1% when a meagre rise of 0.1% had been expected, and this fall in income sapped consumer spending. The fall will heighten fears of a marked slowdown in US economic activity for the quarter considering consumer spending accounts for around 70% of US economic activity.

On a brighter note however was the fact that business activity grew stronger than expected in the US Midwest in September, growing to 60.4 from 56.5 when a slowdown to 55.5 was expected. On top of this was a stronger than expected rise in consumer sentiment, which rose to 59.4 from 57.8 when most investors had expected no change.

Despite the positive data end to the day, most investors decided to downsize the amount of risky assets they held in their portfolios for the weekend and await the new trading quarter next week, whilst the first drop in personal income for two years also cast a shadow over today’s markets.

FTSE loses 14% for the quarter
Today’s close marks a 14% loss for the quarter, which is the worst quarterly performance the FTSE 100 has seen for 9 years as stocks lost heavy ground under fears of a global slowdown in growth.

The volatility we have seen over the last two months where the FTSE 100 has seen daily price swings of 2%-3% on average shows the high sensitivity that investors have been exerting as economic data points to a slowdown and the sovereign debt crisis escalated in Europe. With both those key fears nowhere near easing just yet, the markets could remain just as volatile as we head into the final quarter of 2011.