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Spooked by German short-selling ban, markets tumble

Video by Jonathan CRANE

Text by News Wires

Latest update : 2010-05-20

Asian and European stocks took a hammering Wednesday as markets reacted to financial regulation measures, especially a German unilateral ban on certain naked shorts announced late Tuesday. The euro fell more than 1 percent against the yen.

REUTERS - The euro rallied strongly on speculation it had hit a short-term bottom on Wednesday but equity markets fell worldwide after Germany’s move to ban some naked short sales of stocks and bonds unsettled investors.

Despite a 1.0 percent bounce in the euro, assets perceived as being risky fell in price as concerns the German ban heralded tighter financial regulation, boosting risk aversion.

european markets down on germany's industry regulation
 
The euro was up 1.20 percent at $1.2326.
 
European stocks hit their lowest closing level in nearly two weeks, dragged down by banking shares as Germany’s decision to outlaw naked short selling—shorting assets without borrowing them first—raised concerns other countries might follow suit.
 
Key euro and U.S. dollar inter-bank lending rates pushed higher while crude oil slid below $69 a barrel. Gold prices shed more than 2 percent and industrial metals fell.
 
German Chancellor Angela Merkel said the European Union would introduce its own financial transaction tax or levy if the Group of 20 nations failed to reach a deal in June.
 
“The markets never like governments interfering in what they regard as the efficient running of markets,” said Bill McNamara, an analyst at Charles Stanley in Sweden. “It just doesn’t settle the nerves in the way politicians seem to think it will. Investors should continue to expect high levels of volatility.”
 
The MSCI all-country world equity index was down 1.9 percent, while the more volatile emerging markets index fell 3.3 percent.
 
The FTSEurofirst 300 index of top European shares ended almost 3.0 percent lower at 996.38 points.
 
U.S. stocks also fell on Germany’s short sale ban, fueling investor worries about exposure to riskier assets and about the global economy. Shares of industrial companies, which tend to rely heavily on overseas sales, led losses.
 
The Dow Jones industrial average was down 108.60 points, or 1.03 percent, at 10,402.35. The Standard & Poor’s 500 Index was down 11.57 points, or 1.03 percent, at 1,109.23. The Nasdaq Composite Index was down 29.21 points, or 1.26 percent, at 2,288.05.
 
Market talk on potential meetings or action by the European Central Bank or even that Greece would consider leaving the EU pushed the euro higher after it earlier slipped to a four-year low. The bounce was tempered as the Greek government strongly denied rumors concerning EU and euro zone membership.
 
“There are rumors flying around this morning, and traders clearly are having jitters. That’s typical when the market is on tenterhooks,” said Matthew Strauss. senior currency strategist at RBC Capital Markets in Toronto.
 
Oil fell below $69 a barrel in volatile trade, pressured by high U.S. stockpiles and as Germany’s short sale ban.
 
Weekly inventory data from the U.S. Energy Information Administration showed a smaller than forecast 200,000 barrel rise in crude stocks, a surprise decline in distillates and a smaller than forecast drop in gasoline.
 
It also showed crude stored at the delivery hub for U.S.  futures contracts in Cushing, Oklahoma, hit a new record high.
 
U.S. light sweet crude oil fell 74 cents to $68.67 a barrel.
 
U.S. Treasuries prices rebounded from early losses to resume their advance as the slide in stocks revived investors’ appetite for safe-haven U.S. government debt.
 
The benchmark 10-year U.S. Treasury note was up 4/32 in price to yield 3.34 percent.
 
“European equity markets got completely hammered and the Greek and Spain sovereign debt spreads widened again and that all helped feed the risk aversion bid into Treasuries, despite the small correction in the euro,” said John Canavan, analyst at Stone & McCarthy Research Associates in Princeton, New Jersey.
 
The dollar was down against a basket of major currencies, with the U.S. Dollar Index off 0.64 percent at 86.608.
 
Against the yen, the dollar was down 0.75 percent at 91.43.
 
Spot gold prices fell $30.45 to $1,190.20 an ounce.
 
The MSCI index of Asia-Pacific shares outside of Japan dropped 3.3 percent, while Japan’s Nikkei average closed down 0.5 percent, its weakest finish in 11 weeks.

 

 

Date created : 2010-05-19

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