European stock markets closed lower yesterday on concerns that the devastating earthquake and tsunami in Japan would set back the global economic recovery, dealers said.
They said that, while the immediate damage and loss of life was grave, the full extent was still unknown, with the state of Japan’s nuclear power plants an added and worrying uncertainty.
Insurers, power companies and luxury goods groups tumbled but other sectors held up relatively well, an encouraging performance given the other pressures the markets are under from unrest in the Middle East, dealers said.
“Naturally traders maintain a definitive eye on the situation on Japan where the terrible consequences of both the earthquake and subsequent tsunami has left a devastating effect on infrastructure and loss of life,” said Joshua Raymond, analyst at financial spread-betting firm City Index in London.
“The world’s financial markets have responded... with traders trying to second guess the effects of the tsunami on demand for both materials, insurance liabilities and currencies.
“The Nikkei, Japan’s benchmark index, falling some six per cent... and suffering its worst trading day for over two years is likely to keep traders on edge somewhat,” Mr Raymond added. The Nikkei-225 slumped 6.18 per cent for the biggest single-day loss since October 2008 at the height of the global financial crisis.
In London, the FTSE 100 index of leading shares was down 0.92 per cent to 5,775.24 points. In Paris, the CAC 40 shed 1.29 per cent to 3,878.04 points and in Frankfurt the DAX fell 1.65 per cent to 6,866.63 points.
A risk analysis by AIR Worldwide said the Japanese quake alone, excluding tsunami damage, could cost up to $34.6 billion (€25 billion).
UniCredit analysts said “the possible medium-term implications of the nuclear accidents are more important than the initial devastation caused by the earthquake and the tsunami as such”.
UniCredit noted by way of comparison that the US hurricane Katrina caused insured losses of €47.1 billion, while the biggest financial toll to date from an earthquake, the Californian Northridge quake in 1994, totaled €11.6 billion.
“We are waiting to see what happens in Japan, it is still too early to know what the economic fallout will be from such a disaster,” said Renaud Murail of Barclays Bourse in Paris.
“We must not forget too the other problems – inflation pressure and the unrest in the Middle East,” he added. Economist Christian Parisot at Aurel in Paris said that “given the size of the Japanese economy, its role in international trade and in Asia, the negative impact... will affect the entire world economy”.
In New York, the blue-chip Dow Jones Industrial Average was down 0.86 per cent at around 1715 GMT while the tech-rich Nasdaq Composite lost 0.79 per cent.
Patrick O’Hare at Briefing.com said that despite the bad news, there was no evidence of real fear in the stock market yesterday leading to panic selling.
“Its resilient nature hasn’t simply been related to Japan’s situation either. It has been on display, too, in the face of the European sovereign debt crisis and the uprisings in (the Middle East and North Africa),” he said.
“Signs of continued strong earnings growth and an unfolding economic recovery in the US have (helped)... this market in the face of troubles elsewhere,” he added.
Elsewhere in Europe, Amsterdam fell 0.77 per cent, Brussels shed 0.22 per cent, Milan slipped 0.27 per cent and Swiss stocks finished down 1.25 percent but Madrid bucked the trend with a gain of 0.17 per cent after figures suggested the Spanish banking system was stronger than previously thought.