Euro Markets Wipe Off $300 Billion
Europe's major stock indexes suffered their biggest one-day selloff since Sept. 11, 2001 Monday and lost over $300 billion in market value as persistent fears of a U.S. recession drove investors to short selling.
"(Global stocks) are officially in a bear market," Craig Howard Russell, chief market strategist, China from Saxo Bank told "Worldwide Exchange."
"We really feel this is the beginning of something, not just the end, and we’re going to move lower globally across the board in the next few weeks," Russell said.
Technically, a bear market is defined as a drop of 20 percent off the indexes recent high. In morning trading, the Paris CAC-40 was off 21 percent from its recent highs, with London's FTSE-100 off more than 15 percent and the DAX down more than 13 percent.
"Getting pummelled," said Henk Potts, equity strategist at Barclays Stockbrokers, of the global selloff. "A mixture of weak global economic data, poor corporate data, increasing fears about the possibility of a recession ... have left investors drowning in a sea of red."
Asian stocks echoed the weakness and closed sharply lower, with Hong Kong’s Hang Seng Index and the Shanghai Composite Index falling over 5 percent. Wall Street stock index futures tumbled too -- with Dow futures down more than 350 points -- but the effect of plummeting futures would have to wait until Tuesday as the U.S. market is shut for the Martin Luther King, Jr. Day holiday.
The dollar gained against the euro and sterling, during the stock selloff, as investors' risk aversion grew. But the U.S. currency was firmly lower versus the yen.
“For the moment the dollar is benefiting from people being short … but when people want to buy, it isn’t going to be the dollar,” Adrian Schmidt, senior foreign exchange strategist at RBS told “Power Lunch Europe.”
Mining and energy shares fell along with commodity prices. Royal Dutch Shell shed 5.6 percent, Total lost 5.6 percent, Rio Tinto fell 10 percent as traders played down Friday's rumor of an improved offer for Rio being made by rival BHP Billiton. BHP Billiton dropped 10.4 percent.
Banks took a beating again, with BNP Paribas losing 9.6 percent and UBS down 6.7 percent.
Societe Generale, which lost 8 percent on Friday on market rumors that the French bank could report write-downs, lost another 8 percent.
The selloff in European banking shares accelerated late on Friday after U.S. bond insurer Ambac lost its vital triple-A credit rating from Fitch Ratings. The cut puts at risk billions of dollars of corporate and municipal bonds covered by the company.
"It's becoming more and more difficult as the market is now in panic mode," Hugues Rialan, managing director in charge of discretionary asset management at Robeco France.
"We're falling back into the crisis of confidence in the financial sector. The banks have been reassuring the market over their exposure to U.S. mortgage-related investments, but now we realize there is nothing reassuring about it," he said.
"It's very unsettling to hear market rumors that a bank like Societe Generale could unveil write-downs while it has repeatedly said it doesn't have exposure to the troubled subprime mortgage market. But the truth might be that they have an exposure, but it is covered by monoline insurers. Now, if these insurers default, as it could well be the case, SocGen's exposure will resurface."
Commerzbank was down 10.1 percent. Its designated chief executive told Reuters in an interview that the bank will have to make further write-downs on the value of its subprime-linked investments.
The DJ Stoxx bank index is down nearly 34 percent from its 52-week high, as investors fear that financial institutions have not yet revealed the full impact of the debacle in the subprime market on their books.
"If they had had a much more transparent communication, we would not have all the bombshells, or rumors of bombshells, that we're having today, with all the negative implication for the market," Rialan said.
Northern Rock Is a Lonely Standout
One of the only stocks to buck the trend was U.K. mortgage lender Northern Rock, whose shares soared 45.7 percent on reports that U.K. Finance Minister Alistair Darling has extended the bank's use of Bank of England facilities and announced a funding plan that will raise cash through a special purpose vehicle.
This pushed other financial lenders like Friends Provident and Resolution's shares higher. Friends Provident led the gainers on London's FTSE-100, also helped by a report in the Times newspaper saying that U.S. private equity firm J. C. Flowers has made an informal bid of 4.1 billion ($8.2 billion) for the insurer.
Another rare gainer was Philips Electronics, which reported better-than-expected fourth-quarter earnings. The Dutch electronic company did fail to meet its already downwardly revised growth targets for the closely-watched medical division. But the CEO Gerard Kleisterlee told CNBC he was confident about 2008.
-- Reuters contributed to this report