European stocks plummeted the most in 14 months, following U.S. shares lower, on concern over Europe’s debt crisis and the integrity of American trading systems.
Royal Bank of Scotland Group Plc declined 5.7 percent after reporting a first-quarter loss. Credit Agricole SA, France’s biggest bank by branches, slid 7.2 percent after reporting its risks in Greece. Taylor Wimpey Plc led homebuilders lower as U.K. house prices unexpectedly fell.
The Stoxx Europe 600 Index tumbled 3.9 percent to 237.18, the biggest drop since March 2009. The gauge has retreated 8.8 percent this week, the biggest slump since November 2008, amid concern that a 110 billion-euro ($140 billion) rescue package for Greece won’t be enough to keep Europe’s most indebted nations from defaulting. The measure has dropped 13 percent from this year’s high on April 15 to the lowest level since November.
“Anxiety is getting worse,” Bob Parker, a London-based adviser to Credit Suisse Asset Management, which oversees about $414 billion, said in a Bloomberg Television interview. “Markets are highly concerned about the contagion effect. There’s been nothing to calm market fears. At the ECB press conference yesterday there was no evidence of support for the European government bond markets.”
The MSCI World Index of stocks in 23 developed markets erased its 2010 gain this week as three people were killed in Greek demonstrations against government austerity measures and Moody’s Investors Service said it may cut Portugal’s credit rating. European Central Bank President Jean-Claude Trichet resisted taking any new steps to stem contagion yesterday, saying the bank hasn’t discussed the option of buying government bonds and the onus is on politicians to cut budget deficits.
U.S. stocks tumbled yesterday, briefly erasing more than $1 trillion in market value. Computerized trading exacerbated the selloff as the Dow Jones Industrial Average fell almost 1,000 points, a 9.2 percent plunge that was its biggest intraday percentage loss since 1987. At the end of the day the Standard & Poor’s 500 Index and the Dow average had the biggest percentage drop on a closing basis since April 2009.
The VStoxx Index, which measures options on the Euro Stoxx 50 Index, surged 35 percent to 49.6 today, the biggest jump since October 2008. The Stoxx 600 became “oversold” for the first time in 14 months, according to the Relative Strength Index, which fell to 24.07. The measure, which tracks momentum by comparing closing prices with daily trading ranges, last closed below 30 on March 9 last year, after which the Stoxx 600 rallied 65 percent through Jan. 19.
National benchmark indexes fell in all of the 18 western European markets. Germany’s DAX dropped 3.3 percent and France’s CAC 40 sank 4.6 percent. The FTSE 100 slid 2.6 percent as the U.K. election failed to produce an outright winner, fueling concern that measures to tame the deficit will be delayed.
European shares briefly pared their losses as a report showed U.S. employment increased in April by the most in four years. Payrolls jumped 290,000 last month, more than the median estimate of economists surveyed by Bloomberg News, according to figures from the Labor Department in Washington. The jobless rate rose to 9.9 percent.
“It’s a good sign for the economy,” said Arnaud Scarpaci, a fund manager at Agilis Gestion in Paris, which oversees about $150 million. “For the moment it’s put on the back burner because the focus is on state debt.”
Crisis May Spread
Pacific Investment Management Co.’s Mohamed El-Erian and Loomis Sayles & Co.’s Dan Fuss said the European debt crisis may spread across the globe because of investor concern that governments have borrowed too much to revive their economies. Investors should consider paring their holdings after the plunge in U.S. stocks, according to Jim Rogers and Marc Faber.
Equities had a “normal correction” and were “overdue for a selloff” after rallying from last year’s low, Rogers, Singapore-based chairman of Rogers Holdings, told Bloomberg Television today. “The market was overbought, ahead of itself and due for a correction,” Faber, publisher of the Gloom, Boom & Doom report, said in a separate interview yesterday.
Investors cut their holdings of European equity funds by more than $2 billion in the week to May 5, the biggest outflows in almost a year, amid concern Greece’s debt crisis would spread, according to EPFR Global.
RBS, Britain’s biggest government-owned bank, fell 5.7 percent to 45.5 pence. The lender reported a first-quarter loss of 248 million pounds ($363 million) as investment-banking profit unexpectedly slumped.
Lloyds Bank Group Plc declined 5.5 percent to 53.53 pence, while Barclays Plc lost 6 percent to 283.7 pence.
Credit Agricole sank 7.2 percent to 9.06 euros after saying its corporate and investment bank has 2.4 billion euros of commercial commitments in Greece. The bank also has sovereign risk of 850 million euros and interbank risk of 180 million euros, it said. Greek risk held by the bank’s insurance business comes to slightly less than 400 million euros.
Azimut Holding SpA, Italy’s largest independent fund manager, dropped 6.5 percent to 7.39 euros. Gruppo Banca Leonardo cut its price estimate to 10.2 euros from 12 euros, citing “the unexciting data released on April’s money collection and customers’ assets.”
Homebuilders declined as U.K. house prices unexpectedly fell in April from a month earlier. The average cost of a home slipped 0.1 percent from March to 168,202 pounds, the mortgage lending division of Lloyds Banking Group Plc said.
Taylor Wimpey, the U.K.’s second-largest homebuilder by volume, sank 8.9 percent to 34.62 pence. Barratt Developments Plc, Britain’s biggest homebuilder by volume, lost 7.9 percent to 104.3 pence. Persimmon Plc, the nation’s third-largest homebuilder by volume, retreated 5.5 percent to 418.5 pence.
ITV Plc, Britain’s biggest commercial broadcaster, dropped 8.6 percent to 55.75 pence, the biggest decline since April 2009. Chief Executive Officer Adam Crozier said “the outlook for the latter part of 2010 and early 2011 is tough with more testing year-on-year comparators and uncertain market conditions post-election.”
Adecco SA lost 4.5 percent to 56.95 Swiss francs. The world’s biggest supplier of temporary workers had its share- price estimate cut to 75 francs from 80 francs at Bank Vontobel AG, which cited growth below expectations.
Energy shares fell as oil headed for the biggest weekly drop in 16 months. Dragon Oil Plc, an explorer focusing on Turkmenistan, sank 3.6 percent to 5.10 euros in Dublin. Bourbon SA, owner of the second-biggest fleet of supply and crew ships for the oil industry, retreated 5.5 percent to 29.30 euros.