European stock markets fell yesterday, following Wall Street’s lead, as a rally on expectations that the US Federal Reserve could unveil new economy-boosting plans finally lost steam.
Disappointing US unemployment numbers and denied rumours in Germany also hit trading sentiment, said traders.
London’s FTSE 100 index of leading shares ended the day down 1.44 per cent to 5,131.1 points, while in Paris the CAC 40 slipped 0.65 per cent to 3,119 points and in Frankfurt the DAX fell 1.71 per cent to 5,584.14 points.
“Equity markets after initially being in positive territory slid back in the afternoon session despite a number of positive earnings updates, as upside becomes limited ahead of tomorrow’s second release of Q2 GDP and the Bernanke speech at Jackson Hole,” said CMC Markets analyst Michael Hewson.
Stocks had rallied for the past three days on expectations, misplaced according to many analysts, that US Federal Reserve chief Ben Bernanke will signal in his Friday (today) speech further measures to stimulate the sluggish US economy.
“As the week has progressed, hopes of additional stimulus measures by the Fed seem to have evaporated, and the Street has had to digest several not-so-pleasant pieces of economic data along the way,” said Sarah Wasserman at Shaeffer’s Investment Research.
Elsewhere in Europe, Milan dipped 0.25 per cent, Swiss stocks slid 0.57 per cent, Madrid dropped 0.84 per cent, Brussels fell 0.87 per cent and Lisbon lost 0.90 per cent.
Trading was also hit by rumours about Germany, according to traders.
“The markets were shook by two rumours that were denied: One that Fitch and Moody’s ratings agencies may downgrade Germany’s triple-A rating and the other that Germany was ready to completely ban short-selling,” ETX Capital trader Markus Huber said.
Wall Street opened down following an unexpectedly poor report on weekly jobless claims yesterday casting a new shadow over the economy.
Initial US jobless claims surged to 417,000 in the week to August 20 from a revised 412,000 the previous week, well above the four-week moving average of 407,500.
Nearing midday, the Dow Jones Industrial average was showing a loss of 1.21 per cent to 11,184.10 points. The broader S&P 500 index was down 1.18 per cent to 1,176.69 points while the tech-heavy Nasdaq had fallen 1.17 per cent to 2,438.75 points.
The Dow would have fallen further but for Bank of America, which after weeks of rumours that it needed new capital, said that investment wizard Warren Buffett’s Berkshire Hathaway will buy $5 billion in preferred shares in the company.
BofA shares jumped 17.2 per cent in early trading after having lost nearly 40 per cent in the month to yesterday on shareholder doubts of its financial strength.
Apple shares were down only 1.3 per cent despite the departure of Steve Jobs as chief executive, whose visionary leadership is deeply linked with the company’s hugely successful products like the iPhone and iPod.
The company said Mr Jobs, whose health has suffered in recent years, would remain involved as chairman of the board of directors.
In Europe, investors digested a barrage of company earnings news from the likes of British brewing giant Diageo, Austria’s Raiffeisen Bank and French lender Credit Agricole. At the same time, investors are on tenterhooks before today’s publication of the latest estimates of second-quarter economic growth in both Britain and the United States, said IG Markets analyst Cameron Peacock.
“The key questions remain – what will the GDP readings look like ... and will Ben Bernanke serve up another stimulus package that has arguably already been priced into equities from the gains at the start of the week?” he said.
Last year, at the same annual central bankers’ conference in Jackson Hole, Wyoming, Mr Bernanke hinted that the Fed might launch a second round of quantitative easing – essentially, injecting fresh money into the economy in a bid to pump up growth. The Fed later carried through on the policy, fuelling a months-long stock market rally.