European Stock Markets Suffer Major Losses

Posted by: Mark Scott on October 10

In a case of ‘whatever you can do, we can do better,’ the European stocks markets posted major losses on Oct. 9 after bourses across Asia fell dramatically overnight and the S&P 500 plunged 7.6% on Oct. 8. Central to investors’ concerns is what will it take to end the economic problems that have engulfed the financial sector. After Iceland practically nationalized its entire economy, Britain agreed to pump up to £500 billion ($848 billion) into the domestic banking sector, and other European countries either part-nationalized local financial institutions and/or guaranteed customer savings, many market-watchers were left scratching their heads over what could be done next.

After the Oct. 8 losses in the U.S. and a further slide in Asia overnight, Europe was prepared for a tough day of trading. The continent’s three largest bourses felt the brunt of market pessimism: Germany’s DAX Index, France’s CAC 40, and Britain’s FTSE 100 all fell roughly 10% in early trading, only to recover slightly as investors returned to the market by the afternoon. The falls represent the first time in more than five year that London’s top share index has fallen below 4,000 points. (UPDATE — By the close, the DAX was trading down 7.01%, CAC was 7.73% lower, and the FTSE has lost 8.85%).

Further a field, Russian authorities delayed the opening of trading on the country's Micex and RTS stock exchanges. Iceland's bourse also remains shut until Oct. 13 and trading on Austria's stock market was suspended until midday local time.

Again, financial stocks were heavily sold down. By early afternoon London-time, Barclays had fallen 16%, Deutsche Bank had dropped 15%, and BNP Paribas had lost 12% of its share price.

Yet in a sign investors are worried the continuing banking malaise is having a ripple effect on the broader economy, non-financial stocks also came in for a battering. French retailer Carrefour, for example, had fallen by 6% in early afternoon trading. Fears that a cooling global economy would slow demand for commodities caused many of the London-listed miners to lose ground -- the two largest firms, BHP Billiton and Rio Tinto, had lost 10% and 12% of their market capitalization respectively by afternoon trading. German energy utility RWE similarly had dropped 10% by 13:20 local time.

With European markets still jittery from the numerous economic bailout plans announced across the continent over recent days, analysts reckon it will take time for investors to digest the news and its impact on future market performance. Adding to the mix, G7 leaders are currently meeting in Washington DC to discuss the problems. According to media reports, other countries, including the U.S., now may follow Britain's lead and provide financial guarantees for new debt in an attempt to reopen the capital markets.

That's all well and good, yet market players are fearful the global economy soon will enter recession. Domestic -- even international -- plans to shore up the financial sector might help offset some of the losses recently posted in the world's stock exchanges. Yet, concerns now are mounting that the broader worldwide economy is on the skids. Under such circumstances, it's no wonder the markets took a beating on Oct. 9.