European stock markets fell yesterday as instability in the Middle East and North Africa hit sentiment despite a strong US jobs figure, with safe-haven gold hitting a new high as the dollar slid.
In foreign exchange deals, the euro rose to $1.3873 from $1.3774 late in New York on Tuesday. During the day it reached as high as $1.3891, its highest level in nearly four months, amid mounting speculation of a quicker tightening of monetary policy in the eurozone.
London’s FTSE 100 index of leading shares closed off 0.35 per cent at 5,914.89 points, while in Paris the CAC 40 lost 0.81 per cent to 4,034.32 points and in Frankfurt the DAX finished 0.58 per cent lower at 7,181.12 points.
“European markets have continued their softer theme from the previous session, dragged down by a toxic combination of higher oil prices, which is in turn driving higher inflationary pressures and concerns about growth prospects in the global economy,” said market analyst Michael Hewson of CMC Markets.
New York oil prices climbed back above $100 per barrel while gold set a new record high above $1,440.32 per ounce as investors sought a safe-haven investment.
Safe-haven sentiment also sent the Swiss franc to a new record high of 0.9202 francs to the dollar.
“European equity markets are being driven lower by fears of contagion in the Middle East,” said Dublin-based Dolmen Stockbrokers in a note.
“The region has long been the world’s most important oil producer and the recent unrest has underlined the global economy’s vulnerability to price shocks.
“The actual disruption to supply has been quite small so far but market participants are worried that the kind of unrest seen in Tunisia, Egypt, Libya and now Bahrain could get (to) the world’s largest oil exporter, Saudi Arabia.”
Meanwhile, eurozone bond rates continued to rise yesterday amid expectations of future interest rate hikes and inflation fears.
At 1700 GMT German yields reached 3.195 per cent from 3.177 per cent at Tuesday’s close, while the French 10-year OAT rate hit 3.578 per cent from 3.559 per cent.
Adding to the mix, Standard & Poor’s warned that it would keep its credit ratings on debt-riddled eurozone pair Greece and Portugal on negative watch, meaning that they are at risk of being downgraded.
“The markets remain jittery as a mix of Middle East fears, concerns about inflation pressures and ratings warnings for Portugal and Greece start to weigh on market sentiment,” said Forex.com research director Kathleen Brooks.
“Oil prices are rising at precisely the wrong time for the developed world, where fragile economic recoveries risk getting pushed off track by a rising cost of living. This is weighing on equity markets.”