UK and European markets took a plunge on Monday as concerns intensified over Spain’s financial problems.
“After staying out of the spotlight in recent weeks, concerns over eurozone debt have returned with predictable consequences for the markets,” explained David Jones, chief market strategist at IG Index. “The familiar worries started on Friday with Spanish region Valencia requiring assistance from the government – and speculation over the weekend is suggesting there could be a further six regions that require help. In addition there are also murmurings that due to its inability to meet the terms of its bailout, Greece will receive no further IMF aid. The net result of this for stock markets so far has been a steep dive.”
By the end of the trading day the FTSE 100 index had fallen by 118 points, or 2.1%, to close at 5,534. Just over 80% of companies listed on the large-cap index experienced trading losses, ranging from a small slide to a hefty 11% plunge. The mid-cap FTSE 250 index fell even further, losing 272 points, or 2.5%, to close at 10,897. Other markets across Europe were also tumbling, with the main indices in Paris, Frankfurt, Madrid and Zurich diving into the red.
“As benchmark Spanish 10-year bond yields hit yet more record euro era highs of 7.55%, speculation intensified that more Spanish states would seek government funding,” said Joshua Raymond, chief market strategist at City Index.
“The moves in Spanish bond yields over the last 48 hours of trading has been a big concern in the markets and a key catalyst for a bearish turn in equities that has seen the FTSE lose over 2.5% in the last two trading sessions,” he said. “There are fears that Spain is edging closer to being forced to seek a full scale bailout, having secured EUR 100 billion to help recapitalise its banks.”
Spain also reported this morning that the country’s gross domestic product (GDP) shrank by 0.4% in the second quarter of 2012, after experiencing a contraction of 0.3% in the previous quarter.
Looking ahead to a week full of corporate earnings reports around the world, Michael Jarman, chief equity strategist at H20 Markets says this could be a “pivotal” time for the markets.
“Watch energy stocks as giants such as Exxon Mobil (XOM) and Tullow Oil (TLW) report this week. Banks will also come under the spotlight as Lloyds [Banking Group] (LLOY) and Barclays (BARC) both report interims on Thursday and Friday respectively,” he said.