European stocks finish lower as German rumours sends DAX sharply lower

The markets were clouded with uncertainty and rumour late on Thursday’s session after the German DAX fell over 200 points in a matter of 15 minutes, a 4% swing on the day.

Traders were left scratching their heads with deep confusion as to what triggered the fall, with rumours ranging from a potential credit downgrade to a broad short selling ban in Germany. Both those rumours were firmly quashed by both credit ratings agencies and the German regulator.  Certainly the moves confirm and emphasise just how much trader sensitivity remains in the market, with investors reacting to any small rumour or speculation regardless of whether there is any sense of validity within them. Certainly with the week seeing Indices gain around 4%-5% and with big expectations towards Ben Bernanke’s speech tomorrow at Jackson Hole, investors didn’t want to leave these gains open to risks given the uncertainty of the DAX’s falls.

When both those rumours were quashed we did start to see investors start to buy back into the market somewhat, albeit tentatively.

It was the sharply weaker German moves that dragged down the rest of Europe towards the close, with the FTSE 100 reversing from small gains on the day to close lower by 1.5%, whilst the French CAC saw losses of 0.65%.

Interestingly enough  it was a relatively strong day for Europe’s banks, with Barclays, RBS and Lloyds all topping the FTSE 100 leader board, rallying between 2% and 5% in the process. With UK banks being hit very hard over the course of the last two months, seeing the FTSE 350 banking sector losing over 25%, much of the buying we have seen today has undertones of bargain hunting.

Oil stocks however did say heavy weakness, with the FTSE 350 oil sector losing over 2% on the day, and shares of BP losing 3% whilst Royal Dutch Shell lost 1.5%. Oil stocks have seen decent gains this week but with heavy gun fire being heard in Tripoli and Gaddafi remaining at large in Libya, the early positivity towards a potential end to hostilities in the region has taken a bit of a knock back.