The European markets had a bad day Thursday and the gloomy data releases in the US (terrible Philly Fed manufacturing numbers and an unexpected fall in existing home sales due to contract cancellations) led to a second day of sharp falls in equity prices overseas. . Asia didn’t fare too well either. The Nikkei closed down 1.9% and the Hang Seng was off 3.0%. The yen is back in nosebleed territory at 76.4. S&P futures are off 19 points.
Treasuries are trading at their lowest yields in 60 years. Gold has risen to $1868. The FTSE is now off 2.8%, the CAC 40 also down 2.8%, and the DAX off 3.3%. Brent crude is at $106. The euro is at 1.43.
The most worrisome (but not irrational) development is that UK and Eurobank stocks are on their third day of getting hit (note by contrast US banks stocks were whacked only a tad more than the rest of the market). Per Bloomberg:
European banks tumbled, led by Lloyds Banking Group Plc (LLOY) and Commerzbank AG (CBK), on concern firms will struggle to fund themselves and increase earnings as the region’s sovereign debt crisis strangles economic growth.
Lloyds fell as much as 9.4 percent in London trading, and was 2.4 pence, or 8 percent, lower at 27.44 pence by 8:55 a.m. Commerzbank slid 4.7 percent in Frankfurt, while UniCredit SpA (UCG) fell 4.2 percent in Milan. The 46-member Bloomberg Europe Banks and Financial Services Index tumbled 3.4 percent after dropping the most in two years yesterday.
And the Wall Street Journal:
U.K. banks were among the heaviest fallers. Barclays PLC was down 6.2% at 144 pence, Lloyds Banking Group PLC fell 5.7% to 28 pence, and Royal Bank of Scotland Group PLC was down 3.7% at 21 pence.
In France, Société Générale SA, which lost over 12% Thursday, was down 2% at €20.94 and BNP Paribas SA dropped 3.4% to €33.03.
The Bloomberg story quoted a brave analyst who said the odds of a 2008 style liquidity crisis in Europe was remote (huh? If you think Trichet is gonna gear up as fast as Bernanke did, I suspect you will be disappointed). But the leaks from regulators suggest otherwise. Again from the Journal:
European banks were also being hit by funding worries. The Wall Street Journal reported Thursday that the Federal Reserve Bank of New York, which oversees the U.S. arms of many large European banks, had demanded more information about the banks’ access to funding.
Concerns about funding were also fueled by data from the European Central Bank Wednesday showing that an unnamed bank had borrowed $500 million, the first use of the ECB’s seven-day dollar fixed-rate swap operation for 23 weeks. “This is feeding new fears,” said a Paris-based analyst.