A positive start for markets in Europe and London on Wednesday quickly gave way to another stomach-churning sell-off as fears grew about the state of the Spanish banking system as the Government prepared to shore up Spain’s third largest bank, Bankia, less than a year after the company raised €3.3 Billion from sale of equity in the markets. In the wake of the resignation of the bank’s Chairman, Rodrigo Rato, the Spanish Government has taken a 45% in Bankia.
Market indices suffered growing losses for much of the day as the mood was compounded by the yield on the Spanish Government 10-year bond going to over 6%. It was not until around 3.30 pm that a rally emerged, helped by a simultaneous recovery on Wall Street, as stories filtered through that Germany still wanted Greece to remain in the Eurozone and that the bailout fund would still make a scheduled €5 Billion payment to Greece despite the inability of Greek politicians to form a new coalition government. The Eurostoxx 50 closed a net 0.47% lower.
By the close of play, the FTSE 100 had given up all of its gain since the start of 2012 and, at 5,530.05 (down a net 0.4% on the day) was about 1.3% below its end-December 2011 level. At one stage during the day, the index hit an intraday low of 5,464.41 – a fall from the opening of 1.6%. Among the index leaders, oils (BP ex-dividend, Shell and Tullow) lost around 2% and collectively accounted for almost 20 points of the total net index fall of 24 points as the crude oil price attempted to consolidate after the near 10%-fall over recent days. A wave of negative news about prospects for the sector, particularly for shale gas despite the recent price recovery, left Weir Group down by 5% as brokers reworked their recommendations.
General concerns about the challenges facing the banking sector in Europe, given Spain’s problems, left Lloyds and RBS both lower by around 3.6%. A sense that the sector had become oversold helped mining plays such as Kazakhmys (+1.8%) and Vedanta (+2.8%)to recover some ground. However, the prices for gold ($1,590 per troy ounce) and copper ($ 8,165 per metric tonne)remained under pressure. The shares of bigger mining companies such as Rio Tinto and BHP-Billiton closed with comparatively small changes.
Wall Street indices registered net declines with the Dow Jones Industrial (- 0.75%), the Nasdaq (-0.39%) and the S&P 500 down 0.67%. As in Europe and London, the trend in the indices was fairly erratic as they struggled to recover from the early sharp drop on the back of the black mood in Europe and London. Leaders Apple and Microsoft achieved marginal gains by the close but stocks like Chevron, Johnson&Johnson, General Electric, Wells Fargo, JP Morgan and Philip Morris were lower by between 1% and 2.4%.
European markets have opened mixed today (Eurostoxx 50 is unchanged) while London is tending slightly lower. The mood in Asia overnight was broadly weaker on concerns about the Eurozone. The Bank of England’s Monetary Policy Committee meets today and it is tempting to assume that the deterioration in Europe’s economic outlook will prompt MPC members to hit the QE (panic) button although it won’t necessarily be so.
This document is issued by Beaufort International Associates Limited and is produced for information purposes only and using sources that we believe to be reliable and does not constitute an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or be taken as investment advice. Potential investors are recommended to take advice before dealing from an authorised professional investment adviser or stockbroker. Beaufort International Associates Ltd is Authorised and Regulated by the Financial Services Authority. The registered office of Beaufort International Associates Limited is at 49, Whitehall, London SW1A 2BX, United Kingdom. Beaufort International Associates Limited is registered in England with number 03604683. Sources: Financial Times, City AM, The Daily Telegraph, Bloomberg, Bloomberg.com, BBC News, Proquote, ADVFN, Citywire.
