European stock markets closed sharply lower yesterday, hit by signs of slower growth, especially in global powerhouse China, and fears that Greek debt problems will spark a new eurozone crisis.
Dealers said investors globally were on the defensive, with commodities under pressure after months of sustained gains as China’s economy cools and US and European growth proves modest at best.
They said concerns that another Iceland volcanic eruption could disrupt air traffic after last year’s disastrous ash cloud sank the airlines just as low-cost giant Ryanair warned of tough times ahead.
A combination of weaker EU data and yesterday’s Fitch rating downgrade for Greece stoked doubts Athens can stabilise its public finances, with a possible debt restructuring seen as a step into the unknown for the whole eurozone.
Standard & Poor’s downgrade of Italy’s ratings outlook to ‘Negative’ from ‘Stable’ at the weekend and the Spanish government’s drubbing in local elections added to the uncertainties facing nervous investors.
In London, the FTSE 100 index of leading shares closed down 1.89 per cent at 5,835.89 points. In Frankfurt, the DAX fell 2.0 per cent at 7,121.52 points and in Paris the CAC 40 lost 2.10 per cent to 3,906.98 points.
Other European markets suffered similar stiff losses with Milan the worst hit after the S&P move, losing more than 3.0 per cent. Banks were badly hit as the economic outlook dimmed, with Barclays in London down 1.96 per cent and emerging markets specialist lender Standard Chartered off 2.22 per cent.
Airlines suffered from the fallout of the Icelandic volcanic eruption, with IAG, owner of British Airways and Iberia, down 5.09 per cent while Ryanair tumbled 5.72 per cent as its outlook warning offset strong results.
In Paris, Frederic Aubel, dealer at Global Equities, said investors were looking ahead to the Group of Eight summit later this week in France, wanting to see “solutions for the eurozone as the situation seems to be getting worse.”
Mr Aubel cited developments in Greece, Italy and Spain as worrying, with the euro under pressure against the dollar. “The European Union has to come up with a lasting solution,” Mr Aubel said, pointing to the need to dampen speculation about a Greek debt restructuring, which would help reassure investors.
In New York, stocks were also down sharply. The blue-chip Dow Jones Industrial Average was off 1.33 percent at around 1600 GMT while the tech-heavy Nasdaq Composite fell 1.74.
“Major stock market averages around the world have fallen sharply ... in response to a batch of negative headlines,” said Patrick O’Hare at Briefing.com.” Manufacturing surveys for... China and the eurozone revealed a slowing in business activity... Standard & Poor’s cut its debt rating outlook for Italy... and Spain’s Socialist Party got clobbered in local elections, raising concerns newly elected officials might discover a worse debt picture than had been previously disclosed,” he said.
Given current eurozone debt stresses, the possibility that Spain and Italy might be in serious trouble is a daunting prospect, reviving fears that the single currency could be at risk, dealers said.
In Asian trade earlier yesterday, Tokyo shed 1.52 per cent, Hong Kong fell 2.11 per cent and Shanghai was off 2.93 per cent while Sydney lost 1.88 per cent.