European stock markets yesterday gained some of the ground lost a day earlier after Standard & Poor’s shocked investors with an US debt outlook downgrade some dealers saw as a needed reality check.
They said the markets staged a strong technical rebound in early trade but then slipped back when Wall Street opened with only modest gains despite a series of strong first quarter corporate results.
The S&P action, its first ever downgrade of US debt, and the warning it could actually cut the rating if Washington does not stabilise the US public finances was a rude wake up call for those who thought the problem was confined to weaker eurozone countries, they added.
In London, the FTSE 100 index of leading shares closed up 0.46 pe cent at 5,896.87 points. In Paris, the CAC 40 gained 0.70 per cent to 3,908.58 points and in Frankfurt the DAX edged up 0.18 per cent to 7,039.31 points.
Other European markets showed similar gains.Despite the early gains made on bargain hunting, “investor sentiment remains overshadowed” the S&P action, IG Index trader Ben Critchley said in London.
The S&P downgrade on the US debt outlook to “negative” from “stable” set off a chain reaction across all markets, giving safe-haven gold another boost to fresh record highs just short of $1,500 an ounce.
In Paris, Arnaud de Champvallier at Turgot Asset Management said he was astonished that the markets had held up so well to the S&P downgrade.
“The US hardly fell, nothing seems able to dent the confidence of the Americans,” he said.
Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight, said setting the US public finances straight was essential for Asia and the global system as a whole.
“Given the importance of the US as the world’s largest economy, this is... essential for underpinning the stability of the global financial system,” he said.
In New York, stocks were little changed despite the strong results and better-than expected data on the key housing sector.
The blue-chip Dow Jones Industrial Average was up 0.13 per cent at around 1600 GMT while the tech-heavy Nasdaq Composite was off 0.15 per cent.
Dealers there said early gains were “fuelled by a plethora of favourable data from the earnings and economic fronts,” Charles Schwab analysts said in a note.
“Goldman Sachs Group Inc. easily exceeded analysts’ earnings and revenue projections, along with Dow member Johnson & Johnson,” they noted.
Meanwhile, construction of new homes rebounded in March, with gains in both starts and permits in data welcomed as at least positive even though the industry remains firmly in the doldrums.
In Asian trade earlier yesterday, markets were playing catch up on the S&P lead, posting substantial losses as a result. Tokyo fell 1.21 per cent, Hong Kong shed 1.30 per cent and Shanghai lost 1.91 per cent. Sydney was down 1.41 per cent.