MW: European shares plunge as global rout accelerates
By Sarah Turner, MarketWatch
LONDON (MarketWatch) -- The main national European shares indexes all plunged on Friday, capping a week of carnage in equity markets when policymakers and central banks desperately battled to shore up financials and limit damage to the global economy.
The pan-European Dow Jones Stoxx 600 index fell 7.1% to 206.03, a drop that ranks among the worst one-day falls for the index.
The Stoxx 600 has fallen more than 20% in the last week, leading some strategists to call it a bear market within a bear market. For the year, the Stoxx 600 is down close to 44%.
On a national level in Europe, the German DAX 30 index fell 8.6% to 4,466.76, the French CAC-40 index dropped 7.9% to 3,171.96 and the U.K. FTSE 100 index slumped 7% to 4,012.80.
Trading in Russia and Austria was halted Friday while trading in Iceland won't resume until Monday.
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 on Thursday collapsed to fresh five-year lows. Dow Jones Industrial Average futures were down more than 200 points on Friday morning, pointing to an eighth day of losses for the index. See Indications.
"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 spreadbetting firm GFT.
Utilities, miners, banks
Selling was widespread in Europe, with normally defensive utilities such Germany's E.On , down 11%, 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 were also regarded as safe havens in volatile markets were also sharply lower on Friday.
Shares in drugmaker GlaxoSmithKline dropped 6%, shares in food producer Nestle fell 6.6% and shares in telecom BT Group slumped 11.6%.
More cyclical areas of the market added to losses made in recent sessions, with shares of Lonmin , a miner that's partly held by Xstrata from a takeover deal that fell through, down 8.4%. Xstrata shares fell 14.4% and Rio Tinto shares fell 12.7%.
"The sector has fallen by 41% in the last four weeks in response to slowing economic growth in the OECD, slowing Chinese growth, de-leveraging/redemptions by investors and U.S. dollar strength," noted sector strategists at UBS after downgrading forecasts for most commodity prices.
Also Friday, the International Energy Agency cut its estimates for global oil demand, citing soft summer demand, weakening economic prospects and the spiraling liquidity crisis. Oil futures fell again, down $3.57 at $83.01 a barrel. See Futures Movers.
Oil producers were hit hard, with Royal Dutch Shell down 6% and Total shares down 7.8%.
Banks -- which are at the centre of the year-long financial crisis -- didn't escape the rout, with Unicredit down 14.2% and Royal Bank of Scotland down 18.3%. "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."
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.
