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Shares capitulate despite US Holiday ? Latest Market Analysis

European investors could have been forgiven for expecting a sedate start to the week, with US markets closed for Labor Day. Unfortunately they were wrong and Europe suffered a day that was at times as bad as any seen over the last month.

Having fully digested Fridays disappointing US Payroll numbers over the weekend, the week got off to a nervous start, with a global recession back on commentators minds. Banks were under early pressure in the UK, with Barclays and RBS added to this list of names the US plans to sue for miss-selling packaged mortgage products (described as toxic debt during the credit crunch) to US housing finance agencies Fannie Mae and Freddie Mac.

Despite their share prices virtually halving of the past month, RBS saw a further 12.3% decline, whilst Barclays fell 6.7%, the shares closing at 22.8p and 154p respectively. Lloyds Banking Group closed 2.5p lower at 30.65p in sympathy.

A terrible bi-election result for German Chancellor Angela Merkel’s CDU party suggested the country’s participation in assisting the Euro-zone debt crisis was a political mine-field and seriously undermining her popularity at home. Worries that Italy was already back tracking on recent fiscal reform pledges further damaged confidence and led to a sharp selloff of Italian sovereign bonds.

Having traded as low as 5095, the FTSE tried to regain ground during the last hour, but ended the session 189.5 points lower at 5102.5, a 3.6% fall. Once again France and Germany saw greater declines, with the major indices of both an additional percent lower. The FTSE’s outperformance was all the more surprising after the UK’s dominant service sector reported considerably lower growth in August than the market had been expecting.

Elsewhere Crude Oil fell 1.9% on economic concerns, whilst the dominant safe havens of late, Gold and the Swiss Franc both closed in on record highs.

This was posted in Bdaily's Members' News section by John Dance .