02.05.10
Markets Sag in Europe After Sharp Sell-Off in Asia
PARIS — European markets slipped again Friday, after a sharp sell-off in Asia, amid continued worries about government debt in several European countries and about the state of the U.S. labor market.
The main markets in Europe had fallen between 1 and 2 percent in mid-morning trading, following sharper declines in Asia and on Wall Street Thursday. The Nikkei 225, Japan’s main market gauge, sagged 2.9 percent Friday.
Investor nervousness drew money into the Swiss franc, traditionally seen as safe have during times of distress, driving its value up against the euro to a 15-month high — and prompting a reported intervention by the Swiss National Bank.
The main worry in Europe remained the ability of Greece, Portugal, Ireland, Italy and Spain to rein in their rising deficits, which have been surging in the wake of national stimulus programs and after years of poor fiscal management.
“The market wants to accelerate an issue that the authorities were hoping that time would heal,” Deutsche Bank analysts said in a research note Friday. It added that the European authorities “will be forced to show more of their hands over the coming weeks or months,” suggesting financial support or guarantees from other euro countries was becoming more likely.
The yield on the benchmark 10-year bonds of Spain, Portugal., Ireland and Greece moved higher Friday, while those of Germany and France eased, suggesting funds were still flowing from the peripheral members of the euro-zone into the big core countries.
The FTSE-100 and the CAC-40 were both down more than 1.3 percent, paring sharper early gains, while the AEX index shed 1.7 percent in Amsterdam.
Futures on the Standard & Poor’s 500 Index lost 0.3 percent, suggesting a weaker start on Wall Street.
Adding to the anxiety was a bleaker-than-expected report on unemployment claims in the United States on Thursday, which once again spotlighted the fact the American recovery has yet to feed through to the beleaguered jobs market.
These jitters helped send the Dow Jones industrial index down 2.61 percent by the close of trade Thursday in New York, also dragging markets in the Asia-Pacific region down Friday.
Traders in Europe were also anticipating the release later Friday of the broad U.S. employment report for January.
Asian economies may be expanding more rapidly than those of the United States and Europe — Australia’s central bank on Friday said it expected economic growth there to continue to accelerate — but its stock markets also remain susceptible to global investor jitters fast cash loans.
In mainland China, the Shanghai Composite index sagged 1.9 percent. The market has dropped about 10 percent this year amid investor concerns that the authorities are now curbing bank loan growth in a bid to temper inflation.
The Straits Times index in Singapore lost 1.8 percent by late afternoon, while the Hang Seng index in Hong Kong and the Kospi in South Korea sagged more than 3 percent. The Taiex index in Taiwan ended down 4.3 percent.
In Australia, the main market gauge fell 2.3 percent.
“The ongoing weakness in the markets is largely due to sovereign default risk in the West, but this has even affected the developing markets in Asia,” said Puru Saxena, chief executive of Puru Saxena Wealth Management in Hong Kong in a note Friday.
Amid the worried about a possible bond defaults, the euro continued to weaken against the dollar and other currencies.
The euro was quoted at $1.3683 in London trading. In November, it was trading above $1.50.
Earlier in the day euro fell to a recent low of 1.4559 Swiss francs.
Reuters quoted several currency traders as saying the Swiss National Bank had been selling its currency during Asian trading. The central bank declined to comment.
The central bank has previously intervened to fight deflation and counter the risk of recession.
A research note from the European Equity Strategy at Barclays Capital said the greatest risks for stock investors lie with banks, telecommunication companies and utilities. It recommended investors switch into healthcare and food and beverages.
In London, ICAP, the largest broker of transactions between banks, fell 17 percent after cutting its profit forecast. Banco Santander of Spain fell 2.1 percent in Madrid, where the broader stock index was down 2 percent.
Rio Tinto Group, the mining giant, declined 3.6 percent.
In Tokyo, shares in Toyota bucked the downward trend, eking out a gain of 1.2 percent after upbeat results for the final quarter of 2009, released after the close of trade on Thursday.
But the car manufacturer’s troubles over the recalls of millions of cars are weighing heavily, and have caused the stock to plunge more than 20 percent since a recent high on Jan. 21.