Euro Stocks Sink on Economic Concerns
European stocks ended sharply lower Wednesday as the realities of a slowing economy began to settle on market sentiment following the emergency interest rate cut from the Federal Reserve Tuesday.
Share prices were highly volatile troughout the session as the opposing pressures of easing monetary policy and rising economic uncertainty played havoc with companies’ market capitalization.
Germany’s DAX was flirting with an official "bear market" classification at one point as it traded 19.91 percent lower than its high on the July 13 2007. The SMI, AEX and CAC-40 are all firmly in bear territory, while the FTSE-100 was 16.96 percent down from its July high during the session.
"There's some nervousness out in the market because although we had the rate cut in the United States, which was a positive start to trying to put things on hold, people think the credit crunch isn't over," said Mark Foulds, a trader at Tradindex, told Reuters.
"The fact the market has come off this morning shows us that there is still a lot of downbeat news to come and that there's a lot of negativity out there," he added.
European Central Bank President Jean-Claude Trichet told the European Parliament's Economic and Monetary Affairs Committee that central banks must anchor inflation expectations during these "demanding times" to avoid furthering market turbulence.
His speech indicated the central bank will stick to its hawish stance and not cut interest rates at its March policy meeting.
Traders in the U.S. had expected the ECB to cut rates together with the Fed.
Meanwhile, a key measure of euro zone services growth fell below forecasts to a rate not seen in more than 4 years, data showed on Wednesday, pointing to a slowdown in the European economy.
Bank of England Mervyn King in statements made Tuesday seemed to pave the way for a UK rate cut to revive the economy but warned that price pressures will stop major easing.