There was very little for UK investors to cheer about on Monday as the majority of companies on the FTSE 350 saw their share prices decline. Concerns over the eurozone have resurfaced, and many investors are avoiding making any sudden moves ahead of Tuesday’s US presidential election.
“European markets have tumbled today on fears over Greece's ability to meet austerity hurdles,” said Alastair McCaig, a market analyst at IG. “Greece has until Wednesday for their coalition government to agree to austerity measures that will ensure they receive the next tranche of eurozone bailout funds. A demonstration of market confidence that this would be achieved was highlighted by the negative price action of European banks that are most heavily exposed to Greek debt, as the banking sector dragged down most European markets.”
Spain’s latest unemployment data is also causing concern in the markets.
“The tone for the day was set from the open, with Spain announcing that unemployment levels were rising at a faster-than-anticipated rate,” said McCaig. “These worries were highlighted by the mid-morning German government bond auction that saw traders accepting a negative yield … as traders hunted for safe investments.”
Meanwhile, Americans will be heading to polling stations on Tuesday to decide who will lead their country for the next four years.
At this point, it’s not unusual for investors to sit on the side-lines until Americans have officially chosen their next president, said Kathleen Brooks, research director at FOREX.com.
“Even as China narrows America’s economic lead, the US president is still important to global markets,” said Kevin Gardiner, head of EMEA investment strategy at Barclays Wealth. “An added complication now is that the most pressing US political issue facing markets is the ability of Congress to reach cross-party compromise on the rapidly approaching ‘fiscal cliff’. This is unlikely to be resolved as the general election results arrive in the small hours on Wednesday.”
Amongst the main FTSE 100 decliners on Monday were miners such as Eurasian Natural Resources (ENRC), Vedanta Resources (VED) and Kazakhmys (KAZ).
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HSBC Holdings (HSBA) also dropped by 1% after the bank reported that it set aside over $1 billion to cover money laundering charges in the US and mis-selling of payment protection insurance in the UK.
Investors were unnerved by the bank's money laundering problems, specifically because the bank admitted the final financial penalties could be "significantly higher" than originally estimated.
"The resolution of at least some of these matters is likely to involve the filing of corporate criminal as well as civil charges and the imposition of significant fines, penalties and/or monetary forfeitures," explained HSBC in its third-quarter interim management statement.
"While the prosecution of corporate criminal charges in these types of cases has most often been deferred through an agreement with the relevant authorities, the US authorities have substantial discretion, and prior settlements can provide no assurance as to how the US authorities will proceed in these matters."
By the end of the day, the FTSE 100 index had fallen by 29 points, or 0.5%. It is now closed at 5,839. The FTSE 250 index also dropped by 90 points, or 0.75%, to close at 12,030.
