European stocks start new week sharply lower on Political concerns and manufacturing data
City Index April 23, 2012 9:40 PM
<p>Once again we have Political turmoil threatening to destabilise financial markets over the eurozone debt crisis with the Netherlands coalition government failing to agree on […]</p>
Once again we have Political turmoil threatening to destabilise financial markets over the eurozone debt crisis with the Netherlands coalition government failing to agree on budget cuts forcing the Dutch PM to tender the resignation of his cabinet, appearing to leave the country on the brink of fresh general elections.
At the same time we have seen some shockingly bad data out of Europe this morning, which investors have proved to be highly sensitive to. All in all, it’s been a bad news day and this is why investors have been firmly in risk off mode, sending equities lower across Europe.
By 9.45am GMT, the FTSE 100 had lost 80 points or 1.4%, whilst the DAX fell even more, 2.2% in reaction to the bad PMI figures. Early losses escalated into the afternoon session, with Indices across Europe closing lover by around the 2% level. The FTSE 100 closed at 5665, down 106 points and 1.85%. The DAX closed even lower, down 227 points or 3.36% on the day.
Netherlands facing election uncertainty?
The situation in the Netherlands is concerning, purely on the basis that it is creating more political instability in Europe at a time when the markets want to see the eurozone’s fiscal firewalls maintained and strengthened and EU members focusing on growth policies. Prime Minister Mark Rutte failed to gain support from political ally, Geert Wilders, for €14bn to €16bn worth of budget cuts. This forced him to hand the resignation of his cabinet to the Queen during the day – which had been widely predicted – and this now leaves the country on the brink of the undertainty surrounding a general election.
The key with any general election that now looks likely to occur is that there is every chance that the political parties could attempt to distance themselves from their support of the eurozone debt crisis to win votes. On top of this, failure to agree on budget cuts leaves the country’s Triple A credit rating at significant risk.
Wilder himself recently lobbied to leave the single currency and so it would appear that should a new election take place, it could be an election about the country’s support for the euro as much as forming a new Dutch government.
Chinese manufacturing PMI rose to 49.1 from 48.3 in March but remained in contraction territory below the 50 level. But it was data out of Europe earlier this morning that also added extra weight to Index losses.
German Flash PMI shocks
German PMI manufacturing shrank at its fastest pace in nearly three years this month, with the flash PMI measure falling to 46.3 when a small rise from 48.4 to 49 had been expected. The fall was quite a shock, particularly given that investors were relying on German strength to drive growth within the eurozone.
Eurozone flash PMI also disappointed badly, coming in at 46 when a small rise from 47.7 to 48 had been expected.
Todays data out of Europe raises yet more question marks over weak growth in the eurozone.
Risk off mode
Investors have traded firmly in risk off mode for the start to the new trading week. The miners, financials and oil stocks are the biggest drags on European indices as a result, which is of no surprise given these three sectors are typically the first hit when investors downsize risk. The FTSE 350 mining sector lost 3.7%, whilst the banking sector also lost 2.3% on the day.
BSkyB was one of only two shares to see their prices rise in the FTSE 100 which tells a tale of risk aversion and investors seeking defensive stocks.
We have a raft of company earnings and economic data due out for the rest of the week and one thing is for sure – given the state of play in stock markets today – investors will continue to react extremely sensitively to each and every aspect of important data that is released in the coming days in an effort to qualify global growth rates.