Member Article

Markets lower on EU summit concerns

Today’s overarching theme involved paring back some of the optimism that had been built into this weekend’s meeting of European leaders, and diminishing hopes around the continuing talks between the French president and his German counterpart. Whilst the market had welcomed perceived progress in the latter, the French President’s commitment to which meant that he had missed the birth of his daughter yesterday, it was reported that Sarkozy and Merkel were divided on how to increase the power of the EFSF. As such markets opened down 1.5%, although they recovered from this to trade 0.5% - 1.0% lower for most of the day.

There was a slight jump up in equity markets and the Euro prior to midday upon the release of a document that appeared to confirm that the ESFS would be able to buy government debt in the primary and secondary market. Further, the release of UK retail sales data showed an unanticipated jump in September, with sales including fuel higher by 0.6% from August. The figures, which were ahead of expectations, were lifted by spending on electrical goods such as laptops. The reading was welcome at a time when a raft of domestic data has painted a gloomy picture of the UK consumer environment.

Overseas, Spain managed to find buyers for an auction of government bonds today, a positive step considering all three major ratings agencies have recently downgraded the country’s credit rating. Whilst a high interest rate was paid for the medium term credit, the yields had decreased slightly since the last auction. Across the Atlantic, weekly jobless claims fell more than anticipated and the Philadelphia Fed Manufacturing Index came in way above expectations at 8.7 this month, from -17.5 in September and against forecasts of -9. The uptick in Mid-Atlantic manufacturing activity, combined with recent and more optimistic economic data, is not consistent with a US recession and as such was welcomed globally.

Markets retested their opening lows in the run up to the European close, rumour and count-rumours out of Europe clearly not comforting investors who were already apprehensive ahead of the weekend’s much anticipated EU meeting. The FTSE finished lower by 66 points, a 1.2% loss that saw it close at 5385. Its relative distance from the Eurozone troubles saw it outperform the CAC40 and DAX, both of which lost close to 2.5%.

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