UK and European shares are following declines in Asia after the first round of presidential elections in France and news of a possible early general election in the Netherlands, along with data showing a contraction in German and Chinese manufacturing.
The FTSE 100 is down by 1.6%, while the CAC 40 in Paris is also falling by 1.6%. The German DAX is sinking by 2.2%.
Election Surprises
The first round of the French elections is leaving investors uncertain about the future of the country. "The ... French elections has thrown up a few surprises and indicates voter dissatisfaction for the mainstream politicians as parties on the far left and right benefit from voter delusion," says Simon Denham, CEO at Capital Spreads. "French elections have often thrown up surprises in the past, and even though [Francois] Hollande is ahead in the polls to win the head-to-head run off with [Nicolas] Sarkozy, it could be a very tight call."
The Netherlands is also facing some political instability: “Once again we have political turmoil threatening to destabilise financial markets over the eurozone debt crisis, with the Netherlands coalition government failing to agree on budget cuts and as a result appearing to be on the brink of fresh general elections," explains City Index's chief market strategist, Joshua Raymond. "At the same time we have seen some shockingly bad data out of Europe this morning, which investors have proven to be highly sensitive to. All in all, it’s been a bad news morning and this is why investors have been firmly in risk off mode, sending equities lower across Europe."
Manufacturing Contraction
Germany's Purchasing Managers Index (PMI) showed this morning that the country's manufacturing industry contracted at its fastest pace in nearly three years. "The fall was quite a shock, particularly given that investors were relying on German strength to drive growth within the eurozone," says Raymond.
Meanwhile, PMI data out of China shows the country's manufacturing industry is still contracting, which is causing investors concerns.
Stocks on the Move
Financial and resource shares are weighing down the UK markets. Shares in Royal Bank of Scotland (RBS) are falling by more than 3.5%, while Barclays (BARC) and Lloyds Banking Group (LLOY) are also trading lower. Basic resource stocks are also falling, weighed by the Chinese data, with Aussie miners BHP Billiton (BLT) and Rio Tinto (RIO) both down by more than 2.5%. In Paris and Frankfurt, the shares in major banks are also taking a beating.