UK stocks were headed south today as sentiment soured after euro zone finance ministers failed to come up with a plan to tackle Europe’s mounting debt problems and prevent contagion at the weekend’s meeting in Poland. The FTSE 100 was down 105 points (1.95pct) at 5,292 at 13:15 UK time.
US Treasury Secretary Timothy Geithner, who attended the meeting, proposed expanding Europe’s bailout fund and introducing a fiscal stimulus to deal with the fiscal crisis, but his suggestions were frowned upon by his European counterparts.
In addition to that, the defeat of Angela Merkel’s coalition in a regional election in Berlin suggested that public and political support for further financial aid for troubled euro zone members such as Greece may be eroding.
“‘Membership in a monetary union is an opportunity, but also a heavy burden’ said the German Finance Minister over the weekend. For Greece, the latter part of the sentiment is, if anything, an understatement and, as for an opportunity, Mr Schaeuble must be joking,” said analysts at Brewin Dolphin.
“Greece is not alone in finding that bit hard to swallow. Germany does too! As do the Finns and probably the Dutch, which is exactly why last weekend’s gathering of eurozone Finance Ministers has yet again led nowhere but to more disappointment.”
Banking stocks were hit by concerns over their exposure to European debt. Lloyds (LON:LLOY, down 6pct at 33.65p), Barclays (LON:BARC, down 5pct at 155.6p) and Royal Bank of Scotland (LON:RBS, down 5.5pct at 22.97p) all emerged among the biggest fallers in the FTSE 100.
The lack of action by the EU’s finance ministers has also hit base metal prices with copper sliding to 2011 lows, reducing the appeal of mining stocks, including Antofagasta (LON:ANTO, down 6.5 pct at 1,216p), Kazakhmys (LON:KAZ, down 5.5pct at 993p), Xstrata (LON:XTA, down 5pct at 988.6p) and Vedanta Resources (LON:VED, down 4.5pct at 1,357p).
Satellite telecommunications company Inmarsat (LON:ISAT, down 6pct at 501.5p) also fell out of favour as the rally on takeover speculation that drove the stock up 13.5 percent last week seemed to have run out of steam.
Gold mining major Randgold Resources (LON:RRS, up 1.5pct at 7,060p) bucked the trend as the price of gold firmed amid strong demand for safe haven assets.
Wall Street preview
Meanwhile, financial bookmakers are expecting a sharply lower open in the US following weakness in Europe and Asia. Futures for the Dow Jones Industrial Average (DJIA) dipped 159 points (1.4 percent), while the broader S&P 500 is set to open 20 points (1.65 percent) lower.
Traders in the US are anxiously waiting for US President Barack Obama’s deficit reduction plan, which will be unveiled later today.
The plan calls for a reduction of US$3 trillion of the US federal deficit over the next 10 years, including US$1.5 trillion in tax hikes.
The focus will then switch to Wednesday’s policy meeting of the Federal Open Market Committee with the markets hoping that US policymakers will agree on further stimulus measures to bolster the slowing recovery.
Today’s macroeconomic calendar is otherwise very thin with no notable data set to be released.
