Greece’s admission that it will miss its deficit targets for 2011 and 2012 hit European shares on Monday, with banking stocks among the worst performers.
While a Greek debt default is getting closer, talks continue among eurozone finance ministers on the next steps to try to resolve the currency area’s sovereign debt crisis.
The FTSEurofirst 300 index of top European shares was down 1.7% at 907.71 points by 11am GMT,
“The market has simply run out of patience and confidence that politicians and central bankers will be able to put an end to the European financial crisis any time soon,” said Markus Huber, head of German sales trading at ETX Capital.
“Due to the prevailing very high level of negativity and uncertainties, consumers and companies become a lot more cautious regarding spending and expanding, which in the end might not only lower growth substantially for the next quarters to come but may also push major economies back into recession.”
Highlighting the problem was the cost to insure German debt against default, which rose to a record high of 118 basis points.
“They [the Germans] are going to end up paying for the rest of Europe, if it ends badly,” said a trader in London. “It seems to be going that way.”
‘Further disappointment’
The STOXX Europe 600 Banks index was down 2.8%, underperforming the FTSEurofirst 300. The banking sector has lost a third in value this year.
The biggest faller was financial services group Dexia, whose shares were down 9.8%. Belgian and French finance ministers were due to meet on Monday to discuss ways to shore up the bank’s balance sheet.
Credit agency Moody’s announced it was reviewing its ratings of the Franco-Belgian financial group for possible downgrade on concerns about its liquidity position.
Other big decliners in the banking sector were BNP Paribas, Commerzbank and Société Générale, down between 8% and 5% respectively.
Alcatel Lucent shares were down 8.5%, which weighed on a 2.4% weaker STOXX Europe 600 Technology index. Nomura analyst Stuart Jeffrey said he expected revenues and margins to come under pressure due to economic headwinds.
“Our checks and some early public statements by operators suggest that spending in the second half year is at risk of further disappointment,” he said.
Breaking trend lines
Automakers, among the cyclical sectors whose performance is highly correlated with economic growth, fell 4%, with BMW down 6.7%.
The VDAX-NEW volatility index, Europe’s main investor fear gauge, was up 5.3% hovering below a two and a half year-high, signalling a rise in investors’ risk aversion and a run to safe-haven assets.
However, some investors are looking for the moment to get back into the market.
“Tactically most of the indices, along from those in Asia, are sitting pretty much on their long-term trend lines,” said Neil Dwane, chief investment officer at RCM, part of Allianz Global Investors.
“If it breaks those trend lines, the market can fall 10% to 15% and during that process you would probably feel that your margin of safety is building, you can start to buy high quality, maybe even high yielding equities as the first wave into the market.” — Reuters