European markets showed volatility throughout the day as concerns over expected loan losses at financial institutions collided with other positive news. While a German Investor Confidence report, which unexpectedly rose to the highest level since 2007, spurred up earlier rallies, it was not enough to offset the negative outlook for financial institutions.
[U][B]Europe Session Key Developments[/B][/U]
[B]• Financials Drag Indexes Down As Fear Grows Over Impact Of Loan Losses
• The IMF Predicts Total Global Losses Since Credit Crisis Could Swell to $4.1 Trillion
• Can Optimism Spurred By Unexpectedly Better Releases Rally The Markets? [/B]
European markets showed volatility throughout the day as concerns over expected loan losses at financial institutions collided with other positive news. While a German Investor Confidence report, which unexpectedly rose to the highest level since 2007, spurred up earlier rallies, it was not enough to offset the negative outlook for financial institutions. Markets seemed to turn to the negative until a ZEW survey showed a rise to a two-year high. Some parts of the economy show resilience but the viability of a full-fledged economic recovery will rest heavily on whether or not banks are able to lend. Indeed, the first quarter profitable streak of financials is in all probability unsustainable, as exposures will begin to weigh on profits. These exposures have come under scrutiny as there have been several signs that the recession in Europe has steepened and securities tied to mortgages and credit loans will in turn show greater losses. As a result, lending could once again freeze up and cause further damage to an already ailing economy. Echoing these prospects, the International Monetary Fund estimates that total global losses since the credit crisis began could balloon to $4.1 trillion globally. If indeed they do, this presents a large risk to a recovery. Adding fuel to the fire, further strain comes from the political risk of European Union officials that are unable to come to solidarity over issues in the financial crisis. As disagreement paralyzes action, the underlying problems at financial institutions remain unaddressed. True, some investors are pointing to better-than-expected reports that could signal a bottom. Nevertheless, the largest risk to an economic recovery remains in the financial sector. Since many of the conditions hampering that sector remain, it is unlikely that rallies similar to the past quarter will return in the near-term.
[B]FTSE 100 3987.52 -3.40 -0.09 %[/B]
There was a mix of positive and negative news for the UK, which led to modest declines for the session. Price pressures in the U.K. fell to the lowest level since April 2007 as the headline reading for inflation slipped to an annual rate of 2.9% in March. London-based ICAP also reported that 85% of their mortgage-backed security brokering market share has shifted over to some of its own clients. Some support for the housing market came as Chancellor of the Exchequer, Allistair Darling will set aside 1 billion pounds to help revive house building in the U.K. New construction has declined by over a half since last year. Most sectors showed resilience but were dragged down by Financials and Telecoms, which declined over 2.65% and 0.56% respectively.
[B]CAC 40 [/B][B]2973.94 [/B][B]+4.54 +0.15%[/B]
Utilities and Technology sectors showed resilience gaining over 3% and 2.84% respectively. Arcelor Mittal and Alcatell-Lucent helped drive strength, gaining 1.68% and 2.75%. A US based company, Manpower Inc. rallied over 12% after it unexpectedly posted profits today and expects positive conditions to continue into the second quarter. Although a US firm, much of the profits came from its French operations, underscoring a possible rebound in the area. Weakness in the financial sector with a decline of over 2.5% to derail positive outlook. Banks that sold off were Soc Generale and Credit Agricole, which with declines of 4.52% and 2.40% respectively.
[B]DAX[/B][B] 4501.63[/B][B]+15.33 +0.34%[/B]
German Investor Confidence rose unexpectedly to 2007 levels. All sectors showed strength excluding the Telecoms sector, which declined over 7.24%. Deutsche Telecom led the weakness as it declined over 7.21% after lowering its full-year profit forecast citing the cost of job cuts. Some financials continued to show weakness as Commerzbank and Deutsche Bank declined 2.97% and 0.30% respectively.
[B]IBEX 35[/B][B] 8615.80[/B][B]-102.40 -1.17%[/B]
The Spanish Index was the hardest hit of all European equity markets. Most sectors showed weakness, but were led primarily by the telecom sector, technology, and financial sectors, which declined 2.62%, 2.11%, and 1.91% respectively. Major movers in financials were Banco Santander and Banco Popolar which declined 2.14% and 2.72% respectively. News from Deutsche- Telecom affected the telecom sector as well, as Telefonica declined 2.11%.
[B]S&P/MIB[/B][B] 17688.0 [/B][B]-43.00 -0.24%[/B]
Technology sector gains of over 4.58% helped offset weakness in the Telecom, Consumer Services, and Financial sectors. All three declined 1.66%, 1.59%, and 1.02% respectively. Major movers were Unicredit Spa which declined 2.18%, Telecom Italia SPA which declined 1.66% and Fiat SPA which declined 3.32%.
