Market turmoil continues after early equity rally is sold into on France rumours
City Index August 10, 2011 8:17 PM
<p>The FTSE 100 lost another 3% on Wednesday, having rallied over 1% in the early part of the session and reminding the market that investors remain hugely […]</p>
The FTSE 100 lost another 3% on Wednesday, having rallied over 1% in the early part of the session and reminding the market that investors remain hugely sensitive to global growth concerns and as rumours about France weighed on sentiment.
The rallies seen in the morning session, where strong but speculative buys were seen in the miners and banks, quickly reversed after lunch in the run up to the start of the US session, and these losses escalated into the close forcing the FTSE 100 back to the 5000 level.
A day of high tension and troubling rumours sees Soc Gen fall 15%
It has been a trading day of high tension in the markets, with dramatic falls seen in French trade, where the CAC 40 fell over 5% after French banks in particular suffered heavy falls on rumours of a potential credit downgrade for France and speculation over the financial stability of Societe Generale, whose shares plummeted 15% on the day.
The rumours seen in today’s trade are particularly unwelcome and unfortunately because of the high sensitivity of traders right now, they are reacting first and thinking last. That means the reaction has been a particularly bearish one, with Soc Gen’s shares being severely sold off as a result despite a spokesman’s claims that the rumours are completely unfounded.
Whether or not the uncertainty over France starts to escalate remains to be seen. Certainly if that were to happen it would be a marked escalation in the current fragility of market sentiment and one hopes that this is merely more of a feature of investor sensitivity than facts.
Traders are battling for confidence and the tentative rallies we have seen are born out of opportunism and speculation from investors. As soon as those rallies look under threat, investors have shown a quick appetite to protect their gains and this has meant that any rally is choppy and quickly under threat.
We need to see the markets bounce with strength and conviction soon. Stock indices are getting close to levels that could enforce an even sharper drop off for stocks and indices alike. The FTSE 100 has shown some signs of strength to maintain above the psychologically important 5000 level but a break below 5770 could be a really troubling sign for the following weeks, despite the recent heavy falls.
In London it was the banks that weighed the most on the FTSE 100, with UK banks losing 5% on the day, and Barclays and Standard Chartered being the heaviest fallers, closing down 7% on the day. Falls of 2.3% in the heavyweight mining and oil sectors also weighed on the UK index, whilst Essar Energy was the top loser, falling 11% after Goldman Sachs downgraded their view on the stock.