LONDON: European stocks extended losses Tuesday and a week-long rally in Asia finally came to an end with traders cashing in profits while keeping a nervous eye on a brewing crisis in Italy’s banking industry.
Shares worldwide had pushed higher since last week after a string of major central banks promised they would shore up financial markets to protect them against any negative fallout from Britain’s decision to leave the European Union.
There were also hopes one of the EU’s biggest economies breaking away might not be as painful for global markets as initially assumed.
But as Europe mostly posted losses for a second straight day, and Asia’s rally ended, investors said jitters were back.
“After share price rises last week and profit-taking yesterday, caution will reign in European activity today,” analysts at Germany’s Postbank said.
All eyes are now on remarks by Bank of England governor Mark Carney, expected later Tuesday.
Germany’s DAX index and the CAC both lost ground in early business, while London’s FTSE 100 managed to remain steady.
But the pound was back under pressure, buying $1.3117 and hovering only a touch above its 31-year lows touched last week.
Non-European financial business still provided support, noted David Croy, a senior rates strategist in Wellington at ANZ Bank New Zealand.
“But it doesn’t alter the fact that caution on behalf of central banks, the forthcoming Brexit negotiations with the EU and the wave of elections in Europe next year have raised political risk in Europe,” he said.
Tokyo finished 0.7 percent lower, while Seoul dipped 0.3 percent and Hong Kong fell 1.5 percent, although Shanghai rose 0.6 percent.
Sydney sank one percent with Australia looking set for a hung parliament after weekend elections threw up no clear winner.
The financial sector remained under pressure Tuesday after a warning from the European Central Bank that Italy’s number-three lender Banca Monte dei Paschi di Siena, the world’s oldest bank, had dangerously high levels of bad debt.
The Italian banking system is emerging as a big worry for investors, compounding problems after Britain’s decision to leave the EU, with stress test results on the continent’s lenders due on July 29. Italy’s banks are expected to show capital shortfalls.
BMPS shares, quoted in Milan, saw another bad day after record lows Monday, falling by a further almost ten percent.
US markets are to reopen Tuesday after Monday’s closure for the Independence Day holiday.
Key figures around 0850 GMT
London – FTSE 100: UNCHANGED at 6,522.26
Frankfurt – DAX 30: DOWN 0.7 percent at 9,709.09
Paris – CAC 40: DOWN 0.9 percent at 4,234.86
Euro Stoxx: DOWN 0.15 percent at 2,857.98
Tokyo – Nikkei 225: DOWN 0.7 percent at 15,669.33 (close)
Hong Kong – Hang Seng: DOWN 1.5 percent at 20,750.72 (close)
Shanghai – Composite: UP 0.6 percent at 3,006.39 (close)
Pound/dollar: DOWN at $1.3117 from $1.3317 Monday
Euro/dollar: DOWN at $1.1135 from $1.1142
Dollar/yen: DOWN at 101.67 yen from 102.48 yen
New York – CLOSED for bank holiday
Copyright AFP (Agence France-Presse), 2016
Courtesy : BRecorder