European stocks turn lower; weighed by financials
City Index December 12, 2011 4:38 PM
<p>European stocks have turned lower after Friday’s rally, with investors taking profits early in financial stocks after a 2% rally in the FTSE 350 banking […]</p>
European stocks have turned lower after Friday’s rally, with investors taking profits early in financial stocks after a 2% rally in the FTSE 350 banking sector on Friday.
The FTSE 100 fell 33 points by 8.30am, losing 0.6%, whilst the DAX and CAC both followed suit, losing 1% and 0.8% respectively.
Credit Ratings Agency Moody’s essentially gave the EU Summit the thumbs down, stating that it did not change much of the current sovereign debt problems engulfing the eurozone. Moody’s said that it still expects to review its ratings on all European Union members in the first quarter as a result of the EU Summit, offering few new measures and citing their belief that risks continue to rise in the euro area.
It is these comments that are applying pressure on financial stocks in European trade and this is where much of the lag on the FTSE, DAX and CAC is coming from. Stocks such as Standard Chartered Bank and Lloyds Banking Group were two of the biggest drags on the FTSE in early trade, falling 2%.
It seems that adrenaline from the EU Summit has waned quickly and whilst the markets did initially see strong upside on the back of the agreements made for a fiscal union, volumes were low and this questions the strength of the momentum behind Friday’s charge higher. Investors are starting the week on the back foot already, questioning the amount of confidence that was injected into the markets as a result of the EU Summit. Question marks are still lingering over the role of the ECB and whether they can and will aggressively buy sovereign bonds. This may make any rally short lived. Italian 10-year bond yields continue to race higher despite the EU Summit deal, as they did on Friday and this is perhaps the best vote of no confidence from investors and banks that the deal was not likely to change the debt crisis in the near term. Italian 10-year bond yields hit a high of 6.62% in morning trade as a result.
Miners have also seen weakness, with the FTSE 350 mining sector losing 1.2% in early trade after the Dollar Index rallied around 0.5%, putting pressure on commodity prices. This is despite data showing that copper imports to the fastest growing economy in the world hit a new 20-month high last month, rising 17.9%. Copper prices fell 1.6% on the day.
There is a lack of economic data out today and so as such, the markets are likely to be headline driven, and investors will continue to watch any developments of more third party funding into European bailout funds or the IMF, particularly from that of the BRICS countries, after speculation last week that China was set to invest as much as $300 billion into the US and Europe.