Downgrading of banks hits markets

EUROPEAN MARKETS extended their losses yesterday on the back of poor macroeconomic data and a Moody’s downgrade of 15 of the world’s biggest banks.

DUBLIN

AFTER ANOTHER turbulent week in Dublin, the Iseq finished yesterday not far off from where it started on Monday.

“It started off poorly and stayed poorly,” a broker in Dublin noted of yesterday’s performance.

In line with markets across Europe, the Iseq stayed weak, giving up almost 1 per cent to close down at 3,041.76.

CRH was the main drag on the index, declining by 49 cent, or 3.4 per cent, to close down at €13.67.

Brokers noted a “big seller” in Smurfit Kappa as it traded as low as €4.90 during the day before recovering some of its losses in the afternoon to close down by 16 cent or 3.2 per cent at € 5.00.

Kingspan was also weak on the day, declining by 12 cent or 1.8 per cent to close down at € 6.38.

Airlines managed to buck the trend by going a bit stronger.

After its latest bid for Aer Lingus, Ryanair continued its latest run, adding 6 cent, or 1.5 per cent to advance to €4.08.

Aer Lingus also gained some ground yesterday, inching closer to the €1.30 offer made by its counterpart. It finished the day up by 2 cent or 1.7 per cent at € 1.07.

C&C was flat on the day, giving up just 1 cent or 0.4 per cent to close at €3.38.

Next week investors will be waiting to see if they get a trading update at the company’s agm on Wednesday.

Also meeting shareholders next week will be the board of AIB, which is due to hold its agm on Thursday. It fell back by 1.5 per cent yesterday to close down at €0.067.

LONDON

UK STOCKS dropped for a second day, led by a sell-off in mining and energy companies as base metals declined amid signs of a global economic slowdown.

Bank stocks were little changed after Moody’s Investors Service cut the credit ratings of the country’s four largest lenders, partly because of the risks associated with their capital markets businesses.

The FTSE 100 fell by 1 per cent, the most in three weeks, to 5,513.69 at the close in London, trimming the gauge’s third week of gains to 0.6 per cent.

Mining companies were weak on the day as Kazakhmys lost 3 per cent to fall back to 702p, Vedanta Resources retreated 2.9 per cent to 903.5p, and Xstrata decreased 2.7 per cent to 816.5p.

Energy companies also retreated as crude oil traded near its lowest price since October 4th.

Tullow Oil fell back by 3.4 per cent to 1,431p, BG Group slid 2.4 per cent to 1,217.5p, and BP, Europe’s second biggest oil producer, fell 1.2 per cent to 407.25p.

Marks and Spencer fell by 3.1 per cent to 326.8p as Exane BNP Paribas initiated coverage of the retailer’s shares with an underperform recommendation.

EUROPE

EUROPEAN STOCKS fell for a second day as German business confidence declined to its lowest level in more than two years.

The Stoxx Europe 600 index fell by 0.7 per cent to 246.58 at the close of trade, bringing its total decline from its high on March 16th to 9.5 per cent.

“We’re going to be in an environment for the foreseeable future with extremely low growth, with low interest rates and a lot of politically-driven volatility,” said Lucy MacDonald, chief investment officer for global equities at RCM Ltd.

German automakers declined after Handelsblatt newspaper reported rebates on new cars rose to a seven-year high in June. Volkswagen slid 2.1 per cent to €121.15, BMW slipped 1.9 per cent to €56.47, and Porsche lost 1.5 per cent to €40.31.

Bayer dropped 2.5 per cent to €52.87 as both it and Johnson and Johnson failed to gain US approval to expand the use of their blood thinner Xarelto to prevent heart attacks and strokes in patients with acute coronary syndrome.

US

After a selling-off on Thursday, US markets rebounded yesterday, spurred on by rallies in financial stocks. By lunchtime Morgan Stanley had advanced by 1.1 per cent as Moody’s Investors Services cut the bank by two levels rather than a threatened three grades. Bank of America and Citigroup, which were lowered to within two levels of junk, rose by 0.4 per cent.

“The bad news is out, and it was not as bad as expected,” said Jeffrey Saut, chief investment strategist at Raymond James and Associates in St Petersburg, Florida.

“They had been telegraphing the downgrades for a long time. That was the best telegraphed secret I’ve seen on Wall Street in 20 years. Why does anybody pay any attention to those rating companies? They missed it during the financial crisis.”

Facebook also rallied, advancing by 3 per cent after Nomura Holdings recommended buying the biggest social-networking company

(Additional reporting: Bloomberg/Reuters)