- Shares in Europe recorded another massive one-day fall on Friday following a week of carnage when policymakers and central banks battled to limit damage to the global economy from the recent financial market turmoil. The pan-European Dow Jones Stoxx 600 index (ST:SXXP: news, chart, profile) fell 7.5% to 205.17, which ranks among the worst one-day performances on record for the index.
On Monday, the index closed down 7.6% -- its worst one-day drop ever -- kicking off a week when the Stoxx 600 fell more than 20%. Some strategists are calling this week a bear market within a bear market as the Stoxx 600 is down close to 44% in the last year.
A bear market usually refers to a 20% or more drop from a high.
During the week, the U.K. announced a rescue package for the British banking sector, a move that followed last week's approval of a U.S. bail out plan. This was swiftly followed by coordinated interest rate cuts on Wednesday as governments and central banks tried to convince investors they could deal with problems in the banking sector in a concerted way.
"The banking sector has imploded and led to a situation that is almost untenable," said Mike Lenhoff, chief strategist at Brewin Dolphin Securities. "Everyone is running scared and not really confident that what the authorities are attempting to do is really going to take root." On a national level in Europe the French CAC-40 index (FR:1804546: news, chart, profile) slumped 6.8% to 3,207.86, the German DAX 30 index (DX:1876534: news, chart, profile) plunged 7% to 4,544.31 and the U.K. FTSE 100 index (UK:UKX: news, chart, profile) dropped 8.5% to 3,947.78. Read more on London markets.
Trading in Russia was halted Friday while trading in Iceland won't resume until Monday. Trading in Vienna was briefly halted.
The European losses followed similar declines in Asia. Japanese shares plunged Friday, with the benchmark Nikkei 225 Average seeing the biggest one-day drop in more than two decades, as panic-stricken investors rushed to dump stocks to raise cash. Read Asia Markets.
U.S. stocks plunged at the open, briefly recovered, then sold off again on Friday. Read Market Snapshot.
"What we are witnessing is mass selling on a global scale due to a combination of sheer panic and fear, combined with complete uncertainty over the future of the world's major economies," said Martin Slaney, head of derivatives at GFT.
Utilities drop for second day
Selling was widespread in Europe, with normally defensive utilities such Germany's E.On (DE:ENAG99: news, chart, profile) , down 10.4%, falling sharply for a second day.
"We suspect that capitulation trading driven by redemptions and/or changing investment views -- such as bearish views on oil and a desire to move into higher beta assets -- drove the spectacular fall from grace," said analysts at Credit Suisse on Thursday's 8% drop for the sector.
Other stocks that are usually regarded as safe havens in volatile markets also dropped.
Shares in drugmaker GlaxoSmithKline (UK:GSK: news, chart, profile) (GSK:
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4:04pm 10/10/2008
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GSK 35.08, -0.33, -0.9%) slid 8.1%, shares in food producer Nestle (CH:003886335: news, chart, profile) fell 6.7% and shares in telecom BT Group (BT:
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4:01pm 10/10/2008
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BT 22.81, -2.24, -8.9%) (UK:BT.A: news, chart, profile) slumped 13.1%.
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4:00pm 10/10/2008
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BTI 50.50, -2.45, -4.6%) (UK:BATS: news, chart, profile) is at a 52-week low today and they are seen as one of the quintessential defensive stocks. People are just moving out of all types of risky assets," said Oliver Gilvarry, head of research at Dolmen Stockbrokers in Dublin.
British American Tobacco shares fell 9.9%.
More cyclical areas of the market added to losses made in recent sessions, with shares of Lonmin (UK:LMI: news, chart, profile) , a miner that's partly held by Xstrata (UK:XTA: news, chart, profile) from a takeover deal that fell through, down 8.4%.
Banks -- which are at the centre of the year-long financial crisis -- didn't escape the rout, with Unicredit (IT:UCG: news, chart, profile) down 14.1% and Royal Bank of Scotland (UK:RBS: news, chart, profile) down 20.7%. Read more on bank-sector performance.
Among the handful of gainers, Volkswagen (DE:766400: news, chart, profile) continued its one-month rally, adding 15.2% to take one-month gains to nearly 67%.
G7 meeting ahead
Global policy makers gather in Washington this weekend for the annual meetings of the International Monetary Fund and the World Bank. All eyes are on Friday's meeting of Group of Seven finance ministers and central bankers.
Philippe Gijsels, equity strategist at Fortis Bank, said: "Hopefully, the G7 over the weekend can come up with some sort of coordinated plan to stop this."
Other moves could come from the U.S. where authorities are considering radical new measures to shore up ailing financial markets, including guaranteeing billions in bank debt and insuring all U.S. bank deposits for a temporary period, The Wall Street Journal reported Friday in its online edition, citing people familiar with the discussion. See full story.
Strategists at Standard Life Investments said that they expect asset prices will remain volatile until investors are reassured about an effective policy response, both at a national and international level, involving monetary, fiscal and regulatory measures.
"Valuation measures for equities are rarely sufficient in themselves to spark a rally; they usually need to be combined with positive signals in terms of investor confidence and also a major policy response," said Andrew Milligan, head of global strategy at Standard Life Investments.
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