European stocks turn lower; weighed by financials

<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.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.