European stocks lose ground as banks weigh; US debt setback triggers new record highs for safe haven assets
City Index July 27, 2011 9:04 PM
<p>European indices lost around 0.3% as traders reduced holdings in banking stocks such as Lloyds and Intesa SanPaolo, whilst new record highs were seen for […]</p>
European indices lost around 0.3% as traders reduced holdings in banking stocks such as Lloyds and Intesa SanPaolo, whilst new record highs were seen for the typical safe haven asset plays such as gold and US dollar/Swiss franc as investors reacted to the fragility of talks on raising the US debt ceiling before the August 2nd deadline.
The FTSE 350 banking sector lost over 1% in early trading on Wednesday, with shares of Lloyds Banking Group, Barclays and Royal Bank of Scotland being the key drags on the FTSE 100, losing 3%. Italian banks also saw yet more weakness, with Intesa SanPaolo, whose shares were suspended upon opening, and UniCredit both losing 5% in early trade. Fears of the sovereign debt crisis deepening in Italy has gathered pace over the last few days, with Italian Bond Yields rising after German Finance Minister Mr Schaeuble said that Germany was against a carte blanche for the EFSF to purchase bonds in the secondary market.A downgrade of European banks by Goldman Sachs to neutral from overweight has also weighed on near term banking sentiment today.
Safe haven plays see record highs
The crisis in the US over the deadlock on Capitol Hill between negotiations to raise the debt ceiling continues to trouble investors. Time is running out and the situation has not been helped by the new Republican proposal to cut $1.2 trillion in the first phase and $1.8 trillion as a second phase from spending being found out as inaccurate by the Congressional Budget Office. A vote on the proposal has subsequently been delayed until Thursday as a result whilst the inaccurate details and President Obama’s public threat to veto it anyway has also added to the uncertainty that a solution can be found before the August 2 deadline. Investors remain hopeful that a deal can be made in time, but the longer the delay goes on, the more entrenched investors fears become.
On the back of this, safe haven asset classes continue to see record highs today. Gold hit a new high of $1625.24, whilst the Swiss franc strengthened against the dollar by another 0.3%, hitting a new record low below 0.80. Further gains were also seen for the Yen against the dollar, as well as the Swiss franc against the euro and tobacco stocks in equity trading.
ITV earnings up 86% by advertising slumps in Q2
ITV shares fell 1% after the firm reported a 6% slump in advertising revenues for the second quarter, heightening fears over a continued slump in ad revenues into the third quarter. ITV’s earnings per share rose 86% to 4.1p, largely in line with market consensus and after a strong run. Investors have been happy to reduce exposures to ITV’s shares this morning. ITV shares price remains some 25% off its February highs.
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