FTSE 100 falls in bearish week for investors

The FTSE 100 closed lower by over 1% to finish a rather bearish week that saw the UK index lose 3.3% as investors fled risky asset classes such as stocks as the debt crisis in the eurozone escalated.

Investors in equities have kept a strong eye on debt markets this week, and with Spanish bond yields racing higher and Italian yields swinging in and out of the 7% yield mark for 10-year bonds, this has created tremors in stock markets.

Whilst the ECB continues to show a strong dedication to bring yields on Italian and Spanish bonds under control, far deeper concerns remain over the longer term outlook for the sovereign debt crisis and the potential knock on effect it is likely to have on banks and insurance firms should contagion deepen.

As a result, we have seen a strong move by investors to downsize their holdings in banks and insurance firms this week whilst the debt crisis intensified. The FTSE 350 banking sector lost 6% this week, meaning it has lost a total of 16% in the last three weeks alone, whilst the FTSE 350 insurance sector also lost a hefty 6% in trading this week.

With the eurozone crisis continuing to send tremors into stock markets and with so much at risk right now, investors have shown little motivation to take on huge amounts of risk, leaving very little money at play in the markets and of that money which is at play, most is leaning towards defensive asset classes and stocks such as pharmaceutical or tobacco firms.

Next week will likely see investors continue to trade off the back of headlines out of Europe, whilst an intensive calendar of economic data out in the week will also take focus. Data such as US GDP and FOMC minutes on Tuesday, as well as UK GDP on Thursday will take a big focus and a chance for investors to gauge the strength of the US and UK economic recovery.