Following a small decline in the previous session of trading, European markets moved noticeably to the downside with a selloff of more than two percent that sent the indices back into year-to-date losses.
Europe Session Key Developments
• Financials Fall on Weak European Earnings
• Commodities Pull Back From Recent Highs
European Stocks Tread Lower on Fundamentals as Financial Rally Fades
Following a small decline in the previous session of trading, European markets moved noticeably to the downside with a selloff of more than two percent that sent the indices back into year-to-date losses. The financial rally that has sent markets significantly higher since march has largely faded and today’s poor results from insurer Allianz and financial-services firm ING added to sentiment that the weak economy will contribute to further downside in the sector. The housing market also remains weak and Britain’s Land Securities announced a large full year loss of 5.19 billion pounds. Since bottoming in early March, European markets have rallied significantly with a greater than 26% gain as of yesterday’s close on the UK FTSE to a sharp move of over 60% in the financial heavy Italian index. Fundamental data remains on the downside with as industrial production continued to contract in March at a higher rate than forecast while the Bank of England expects a slow recovery for the island nation and inflation to remain under two percent for several years. Data in other nations added to the downside as US retail sales surprised lower than the forecast for no change in April. Also of note, China’s retail sales rose significantly while exports fell sharply. While there are some who believe China’s domestic growth can raise demand and pull the world out of recession, such a view remains unlikely given weakness in advanced economies.
FTSE 100 4,331.37 -94.17 -2.13%
Financials and Basic materials led the slide in the UK index with 6.40% and 8.02% respective declines. The FTSE managed to post the smallest decline of the five majors and four sectors posted gains that were limited to less than one percent. Leading the declines were firms involved in the housing market including Land securities down 13.17% on a weaker than expected full year loss of £5.19 billion. Other firms seeing significant downside included miner Xstrata with a decline of 12.77% on a stronger dollar and a 12.64% fall in Royal Bank of Scotland. The UK inflation report released today showed that the Bank of England does not expect a quick recovery for the island nation and does not foresee inflation above two percent for several years.
CAC 40 3,152.90 -78.20 -2.42%
Trading in the French index resulted in a more than two percent decline as eight of the ten sectors fell with financials leading the charge with a 6.80% move lower. Large financial firms seeing declines on the session included Credit Agricole falling 8.43% and BNP Paribas dropping 7.92% along while insurer Axa’s 7.73% slide. Double-digit percentage declines were seen in Water company Veolia’s 11.05% move and a 10.04% drop in shares of Alcatel-Lucent. The healthcare sector proved resilient today with a greater than two percent gain led by drugmaker Sanofi-Aventis.
DAX 4,727.61 -126.50 -2.61%
The German index closed noticeably lower with financials leading the declines with a 5.67% move and gains in just three sectors of less than two percent. Six stocks posted gains while the remaining 24 closed in the red. Consumer services and industrials also fell sharply with moves in excess of four percent on each. Leading the decline was Commerzbank with an 11.57% fall as difficulties continue. Other financials that fell significantly included insurer Allianz with a 7.76% drop on weaker-than-expected earnings and Deutschebank taking a 5.52% hit. As commodities pulled back today, steelmaker Salzgitter saw its share price drop 8.25% while ThyssenKrupp fell nearly four percent. Of the few firms that rose, healthcare group Fresenius led advancers with a nearly five percent gain.
IBEX 35 9000.60 -268.40 -2.90%
Spain’s IBEX closed lower by nearly three percent as declines were noted in all sectors of the index. Minimal losses of just over half of one percent were seen in healthcare and technology while financials fell nearly five percent and basic materials tumbled more than three percent. Falling the most on the session at 7.32% was builder Ferrovial as the company’s subsidiary BAA will be forced to sell Gatwick airport following a U.K. ruling. Leading the index point declines was financials included Banco Santander and Banco Bilbao with respective declines of 5.13% and 4.62%. Airliner Iberia was the only firm seeing green on the session but at less than a one percent gain. Ultimately the IBEX closed just above the 9000 level but may be poised to continue lower in the days ahead.
S&P/MIB 19,381.00 -956.00 -4.70%
The financial heavily Italian index tumbled the most of the five majors with a nearly five percent decline. All sectors fell with losses ranging from a 1.60% drop in utilities to a sharp 7.27% selloff in financials. Italy’s second largest insurer, Fondiaria, led decliners with a 13.42% drop as the firm reported Q1 profit of 21 million euros compared to 136.3 million in the year-ago period. Banco Popolare fell the most on the session with a 13.42% move following a large rally in shares of the stock since March. Also reporting earnings today was Italy’s largest bank, Unicredit, which showed profit falling 58% but less of a decline than expected. Shares of the bank traded 7.66% lower but outperformed several peers.
