European stock markets fell yesterday with attention fixed on Spain as it prepares to publish an audit of its stricken banks and as a tough budget in France dampened the mood.
The financial sector was in sharp focus also after Britain’s financial regulator ruled that the key Libor interest rate needs a “complete overhaul” in the wake of the Barclays rate-rigging scandal.
At the close, London’s FTSE 100 index of top companies was 0.65 per cent lower at 5,742.07 points as Frankfurt’s DAX 30 lost 1.01 per cent to 7,216.15 points, and the Paris CAC 40 fell by 2.46 per cent to 3,354.82 points after the budget announcement.
Madrid’s IBEX 35 index slumped 1.71 per cent and Milan’s FTSE Mib lost 2.29 per cent.
On Wall Street, in midday trade yesterday, the Dow Jones Industrial Average was 0.54 per cent lower, the S&P 500-stock index fell 0.74 per cent and the tech-rich Nasdaq Composite shed 0.63 per cent.
“The US equity markets are giving back yesterday’s gains in the wake of a mixed domestic personal income and spending report, as well as continued Spanish caution ahead of its release of the results from its banking sector audit,” analysts at Charles Schwab & Co. said.
Stock markets had rebounded on Thursday as dealers brushed aside downbeat US growth data and took stock of a fresh Spanish austerity budget amid fears Madrid needs a full sovereign bailout.
In foreign exchange trade, the euro slid to $1.2849 from $1.2911 late in New York on Thursday. Gold prices rose to $1,776 an ounce on the London Bullion Market from $1,763 on Thursday.
France’s budget intends to plug a €37 billion hole in its public finances with the toughest package of tax rises and spending cuts the country has known in an economic downturn.
The 2013 budget adopted by President François Hollande’s Cabinet commits the ruling Socialists to an austerity programme and sharp deficit reduction at a time when the economy is teetering on the brink of recession.
“A 1.5 per cent reduction of the deficit represents a considerable effort at the best of times. In a period of zero growth it would be exceptional,” said Elie Cohen, director of research at the government-financed CNRS think tank.
In Spain, the formulation of the 2013 budget and audit of the country’s sick banking system is seen on the markets as one of the final acts before a sovereign bailout.
The eurozone has already agreed to extend a rescue loan of up to €100 billion for a banking system bogged down by bad loans that piled up after a 2008 property crash.
If Spain formally requests a broader sovereign bailout, it would become eligible to benefit from a bond-buying programme for troubled states, as outlined by the European Central Bank on September 6.
That would curb Spain’s borrowing costs, but to qualify Madrid would have to apply for help from the European Stability Mechanism – and submit to its conditions. (AFP)