Stock Indices slide on Italian debt concerns – FTSE VIX rises 22% on day

<p>Stock indices across European slid heavily lower on Monday, continuing Friday’s losses as risk aversion continued to bite with investors becoming increasingly concerned that Italy […]</p>

Stock indices across European slid heavily lower on Monday, continuing Friday’s losses as risk aversion continued to bite with investors becoming increasingly concerned that Italy could become the next Greece, a fact emphasised by the FTSE Volatility Index rising 22% on the day.

The FTSE 100 traded lower by 1.3% on the day, whilst the DAX, CAC and IBEX all fell between 2.5% and 3.5%.

Risk aversion continues as Italy concerns weigh
Italian stocks have been hit the hardest. The Italian Mib Index was trading down on the day by over 4%, its biggest one day fall since mid May last year. The Italian Index was dragged heavily lower by banking stocks such as Intesa SanPaolo, whose shares traded lower by 8% on the day on concerns over the country’s debt situation.

Commerzbanks’ comments that Italian debt this year is likely to reach as high as 120% of GDP, which would be the highest in the euro zone after Greece –  is merely validating tensions that the country could join a lengthening list of bailed out EU countries.

We have the US Dollar Index charging higher on the day up over 1%, along with higher gold prices, whilst miners and banks trade heavily lower on the day and Italian bond yields climb to new highs. The whole trading session has been one of risk aversion, along with that of Friday’s after the really poor US jobs report.

Much of the confidence built upon the stock gains we saw in late June/early July has deteriorated in the last five or six trading sessions as the prospect of a slowing US economy and escalation in sovereign debt sends investors for cover.

We have the US earnings season kicking off tonight with Alcoa reporting and JP Morgan and Citigroup the headline earnings to come later this week. One would hope that a better set of earnings than the market is expecting could help to blindside investors somewhat from Italian debt fears. One would fear however about disappointing earnings weighing on existing concerns regarding sovereign debt spreading to Italy and potentially triggering yet more falls for stocks.

Closer to home it was shares of BskyB that continued to weigh on the FTSE 100, falling near 6% on the day to trade below the 700p level. Investors continue to fret that News Corp’s bid could founder under the sheer weight and intensity of the political and public backlash in the wake of the phone hacking scandal. Shares of Lloyds Banking Group and Royal Bank of Scotland also traded lower, weighed down by sovereign debt fears which dragged down the majority of European banking stocks. Essar Energy also fell 5% on the day after its subsidiary Essar Oil released earnings information that disappointed the market.

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