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Shares in miners fall dramatically as doubts surface over debt deal

Stock markets ended the month and started the week on a sour note, giving back much of the ground gained last week, as the FTSE 100 fell by 2.75% with 158 point drop to 5544.2. Stocks in the UK and the rest of Europe started the day around 1% lower but gradually declined further as the day progressed.

The FTSE has gained over 8% in October, the biggest monthly advance in over two years and although profit taking on some of those gains could be blamed for the fall, it was Europe that once again provided the woe and ammunition the bears used to drive markets lower. The yield on the 10 year Italian government bonds climbed again to over 6.1%, a level that was higher than when the ECB started buying bonds nearly three months in an attempt to bring yields lower.

Doomsayers used this as evidence that the €1Trillion plan announced by European leaders last week to resolve the debt situation lacked the firepower needed to shore up financial stress in Italy and Spain. Although EU leaders have already shaken the charity tin under the noses of the Chinese, Europe has not as yet raised any of that aforementioned firepower, so an increase would be more than just politically difficult.

As the euphoria of the previous week evaporated, it was those that benefited most that suffered, industrial metal prices fell sharply and naturally it was shares in mining companies that led the FTSE 100 decliners. Vedanta Resources and Kazakhmys both lost nearly 9%, whilst another 5 miners were amongst the top ten worst performers in the FTSE 100, along with Lloyds Banking and RBS, down 7.6 and 7.8% respectively.

The other loser in the top ten was financial trader and interdealer broker, ICAP. Although the business is ordinarily a beneficiary of volatile markets, the shares slid on fears additional regulatory burdens could diminish the returns of the group. This came after the collapse of US diversified financial company MF Global, which filed for bankruptcy following huge losses on European sovereign debt, prompting questions about how it was allowed to take such destructive large positions.

As fear returned to equity and commodity markets the yields on UK and US bonds fell noticeably as investors sought safety in government stock, ironic havens given the sovereign debt worries that continue to overhang the economic world.

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