Eurostocks end at Feb 99 lows, more pain expected
By Huw Jones
LONDON, Sept 7 (Reuters) - European shares ended a black
week sharply in the red with leading indices tumbling to levels
last seen in February 1999 as investors scrambled for the exits,
with little sign the pain will ease near term.
Leading the downdraft, European tech leader Nokia <NOK1V.HE>
fell six percent to touch January 1999 levels. The world's
largest mobile phone maker has lost one sixth of its value this
week.
The Eurotop 300 <.FTEU3> index had slid 2.5 percent by the
time most bourses shut at 1530 GMT.
For the week, the pan-European blue chip index was down
five percent, and has lost nearly a third of its value since its
record high last August.
For much of the week the selling was led by techs and
telecoms, the focus of poor earnings outlooks and concerns about
debt levels.
But by Friday, the volume and scope of selling had broadened
out to include hitherto safer havens like basic industries,
utilities, insurers and food and beverage firms.
The pick up in volumes after the summer doldrums and
ferocity of selling in techs especially triggered hopes that the
week's events looked like the final washout in a bear market,
but fund managers remained unconvinced.
"I dont think we are quite there," said Chris Woods of asset
management company State Street Global Advisors in London.
"The U.S. market is still overpriced, Europe and the UK look
more like fair value, but they are tainted by the tech
contagion," Woods said.
"We have another 10 to 15 percent to go down in the U.S.
Something has to turn before you buy. It comes back to profits,
profits, profits, and future expectations have yet to get
finally in line with reality, and then they must start to beat
expectations."
PAYROLLS SOUR MOOD
As European bourses ended the week, the Dow Jones industrial
average was down 1.5 percent, hit by gloomy U.S. payrolls data
for August saw the unemployment rate jump to a 4-year high, with
non-farm payrolls tumbling a whopping 113,000 in August, five
times more than expected.
The Nasdaq Composite was off 0.45 percent, its losses
contained by relief that earnings guidance from global chip
bellwether Intel <INTC.O> late Thursday sprung no surprises.
Intel's shock-free earnings guidance helped lift Germany's
Infineon <IFXGn.DE> by 3.5 percent. Positive comments from
Goldman Sachs also helped the European chipmaker.
Analysts said the payrolls numbers would bolster the case
for another interest rate cut by the Federal Reserve when it
meets in October.
"These are horrendous numbers that put the equation in stark
relief for the Fed, that they have to cut rates by 25 basis
points in October, and the debate could swing to a 50 basis
point cut," said David Brown, chief European economist at Bear
Strearns.
ANGLO HITS MINERS, INSURERS SINK
Basic producers were among the hardest hit as Anglo-American
<AAL.L> fell 6.5 percent. One of the world's biggest mining
companies, Anglo reported weaker-than-expected first half
profits and held out little hope of a near-term pick up in
prices for its commodities.
The bearish outlook hit the sector, with rivals Rio Tinto
<RIO.L> falling four percent, and BHP Billiton <BLT.L> 3.8
percent.
Insurers, particularly those in the UK, were hit hard as a
sector, which had to a great extent bucked the recent downward
trend in stocks, finally succumbed, and the same was true for
peers elsewhere in Europe.
Britain's CGNU <CGNU.L> slid 6.5 percent, Dutch Aegon
<AEGN.AS> fell 4.3 percent, and British Prudential <PRU.L> lost
5.3 percent.
In telecoms, Finland's Sonera <SRA1V.HE> sank 12.6 percent
amid unrelenting concerns about its high debt level and
uncertainty about its strategy in Germany.
FRAGILE CHARTS
"The main problem this week is that not only have we broken
below support levels in the market, but volumes have picked up
too," said Nick Glydon, a technical analyst at JP Morgan.
"In the summer, the trend was down but you did not know
whether to believe it as the volume was not there, but now
volume has picked up and trend still down, this is a clear
signal that we are in a bear trend," Glydon said.
Glydon said Europe's stock indices must hold the October
1998 troughs reached during the meltdown in bond-trading firm
Long Term Capital Management triggered by Russia's debt default
two months earlier.
For the FTSE 100 in London and the DAX in Germany, those key
levels are only about 700 to 800 points away.
"There is significant downside risk to these markets, and
history tells us you should never try to bottom pick, but wait
for evidence of a bottom," Glydon said.
((European Stock Markets team +44-20-7542-3209, fax
+44-20-7542-3722))
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