European equities collectively declined today as fears of the economic impact of swine flu continued to weigh on markets. Economic releases, though mostly non-market moving, showed better than expected results, albeit at continually weak levels. Meanwhile, loan exposures at banks that impaired lending in the past remain in their holdings.
Europe Session Key Developments
• Swine Flu Subdues Hopes Of A Near-term Recovery
• Weakness In Financials Continues, Exposures Remain
• Risk Aversion Will Likely Continue In the Near-term
European equities collectively declined today as fears of the economic impact of swine flu continued to weigh on markets. Economic releases, though mostly non-market moving, showed better than expected results, albeit at continually weak levels. Meanwhile, loan exposures at banks that impaired lending in the past remain in their holdings. With a global recession deepening in the past few months, unemployment rising, and overall business activity declining, these loan and credit card related securities could present greater losses. The International Monetary Fund echoes these risks as it predicts losses could balloon up to a total of $4.1 trillion before a turnaround will begin. Following these statements, the IMF expects a recovery would not begin until as far as 2010. Indeed this scenario is possible as well. If losses swell further, bank lending will again freeze up, effectively cutting short any recovery that might have been forming. Outbreaks of swine flu further amplify this risk, as fear caused by the disease will likely have large economic impacts on travel, food consumption, and other related industries. In an already weakened economy, this presents a very large risk for the coming future. Nevertheless, the swine flu’s impact is uncertain as of yet. The World Health Organization raised its pandemic alert to the highest level since 2005, adding to concerns that the disease could have similar effects as SARs. In the meantime, even without the risk of the pandemic, a possible recovery was on weak footing to begin with. Now with very little in the way of optimistic news, risk aversion will likely continue to weigh on equities for the near-term.
FTSE 100 4096.40 -36.84 -1.59 %
Financials were very weak in the index, declining over 2.38%. Major movers were RBS, declining 4.66%, Barclays PLC declining 1.28% and Lloyd’s Banking which declined 4.88%. Basic Materials declined the most out of all sectors, a drop of 4.46% following with the Utilities sector closely behind with a decline of 3.25%. The sectors were weak primarily on concern of the economic impact the swine flu virus would have on materials use and energy consumption.
CAC 40 3051.02 -70.61 -1.66%
French Consumer Confidence rose slightly but remains at negative levels. New Housing Starts continued to decline as well. Basic materials sector showed the most weakness with a decline of over 5.81%. The largest mover in the sector in terms of volume was Arcelor Mitall, which declined 6.09%. Financial and Industrial sectors also showed sharp declines over 3.58% and 3.1%. Other major movers were Renault SA and BNP Paribas, which declined 5.21% and 3.86% respectively. Drug-maker Alcatel-Lucent, benefitting from the Swine flu fears rose over 2.4%
DAX 4607.42 -85.65 -1.85%
German CPI showed a 0.7% increase for the month but was largely attributed to holiday seasonality. ECB officials continued to reiterate that disinflation risks remained strong as the economy continues to contract. Sectors that showed the most weakness were Industrial, Financial and Technology sectors, which declined over 3.18%, 2.94% and 2.68% respectively. Major financials that showed weakness were Commerzbank and Deutsche Bank which declined 2.57% and 6.91% respectively. Daimler AG also showed weakness with a decline of 3.67%.
IBEX 35 8656.30 -120.70 -1.38%
Weakness was primarily seen in Consumer Services, Industrials, and Financial sectors, which declined 2.54%, 2.02%, and 1.75% respectively. Equities with largest volumes and most movement were Banco Santander, Banco Bilboa, and Banco Popular which declined 1.35%, 2.14%, and 2.27% respectively. Strength was seen in Gamesa SA which gained over 3.65%.
S&P/MIB 18498.00 -325.00 -1.73%
Italian retail sales fell more than expected by 0.2%. All sectors showed weakness except for Oil & Gas, which gained over 1.08% Major market movers were Unicredit SPA, Telecom Italia, and Fiat SPA, which declined 2.92%, 3.51% and 2.61% respectively. Some fundamental indicators showed better than expected results, with business confidence and consumer confidence rising more than expected. Nevertheless, they remained in largely negative territory.
