The mass sell off that gripped markets yesterday has followed through into today and stocks are being hit heavily. European stock markets, in particular the Cac, have been severely sold off in recent days with the French benchmark down a whopping 8% in July alone. This sort of move is heading towards bear market territory, meanwhile in the same time the Dax is down 6% and the FTSE 3.5% lower. This shows French investors voting with their feet, shunning the deals being thrown around by the politicians to sort out Greece and simply piling out of banking stocks which in France are heavily exposed to Italy. And whilst we’re on Italy, their benchmark is down 14%, which really is knocking on the door of a bear market.
It’s not Italy’s budget deficit that’s the problem, but the mountain of debt. For Europe’s fourth largest economy to owe so much and not being bothered to do anything about it, shows contempt for the markets and now they are being punished. It also doesn’t help that the Italian Prime Minister recently tried to add a clause to his national budget bill purely for the benefit of one of his own companies and investors are starting to get fed up. The bond markets in particular are punishing Italy and the periphery with yields continuing to spike and in Italy’s case the 10y has almost surpassed 6%.
The FTSE 100 (UKX) this morning is in freefall and there’s a feeling amongst the dealers here that 2008 was just a picnic compared to the situation now. The speed with which the markets have turned around and the sharp selling is enough to make anyone panic and so support levels are being swiftly brushed aside as we now head towards the 5800. There’s little point in mentioning where the next support levels are as they don’t seem to be making any difference!
The euro took and continues to take a severe beating as we sink deeper into worry about the actual state of the euro zone debt situation. As yields continue to rise on sovereign bonds, we can only wonder what the next stages are going to be in sailing the ship out of this storm. Trading against the dollar at 1.3889, we haven’t seen the euro at these levels since mid-March. The pair is under pressure as it has broken through its previous support level…
