A volatile time for the euro-zone

European markets have had a volatile six weeks, rising from the beginning of October until the stockmarkets closed yesterday.

Germana Martano, 14 November, 2002 | 5:13PM
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The MSCI Europe index increased 5.5% in euro terms. Milan and Paris were the strongest performers, rising 7.7% and 6.8% respectively. After the falls of previous months the German DAX index closed up 5.7% on November 13th.

The European Central Bank (ECB) held rates steady even though the American Federal Reserve decided to cut interest rates by half a percentage point to 1.25%, the lowest level since 1961.

The American economic situation offered little positive knock-on effect to help European investors. Few market experts are predicting a strong recovery. In addition, new terrorist threats from Osama Bin Laden and the fear of

the war against Iraq contributed to poor investor sentiment.

Recent German data has prompted fears of an imminent recession. The ZEW, a well-known monthly index of business expectations, fell to 4.2 on November 12th, down from 23.4 in October. The Ifo economic institute’s index, a leading indicator of business sentiment, continued to decline in October.

Money managers are wary but have cautiously started buying shares and decreasing portfolio cash levels. Sentiment is improving slowly as investors choose defensive and aggressive sectors to balance their portfolios. Firms reported mixed financial results in October. There was not much good news for banks and insurance companies but some positive signals for telecommunications firms.

Despite low share valuations retail investors continued to buy money market and bond funds. Market players are keenly awaiting the next ECB meeting on December 5th.

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