London: European shares extended their losses in volatile trade on Thursday as simmering concerns over the euro zone put the FTSEurofirst in a straight-jacket ahead of the weekend’s Greek election.
By 04:00 pm, the FTSEurofirst was down 7.64 points, or 0.8%, at 979.31, while the EUROSTOXX50E implied volatility index, a crude gauge of investors’ fears, was up 3 percent, having more than doubled since mid-March when Spain reignited euro zone debt fears.
Major support is seen around 950, where the index was in December before an ECB cheap liquidity-inspired rally, although stocks have fallen more than 11% in the last three months.
The retreat has left the FTSEurofirst 300 and Germany’s Dax trading on a 12-month forward price-to-earnings of 9.7 times and 9.2 times, respectively, well below historically averages.
“Equities are getting some relative valuation support compared with other asset classes and that is limiting the damage, but it is not enough to build a decisive recovery given everything else that is going on,” said Ian Williams, equity strategist at Peel Hunt.
Riskier equities such as banks and miners were among the top fallers, with the broader index suffering another down session as investors remained clouded by European debt worries.
Credit Suisse fell by as much as 8.8 percent after the Swiss National Bank urged Switzerland’s second-biggest lender to expand its capital base to shield itself from an escalation of the euro zone crisis.
Echoing the impact of declining consumer demand amid the euro zone debt crisis, struggling Finnish cellphone maker Nokia shed 10.1% after announcing further job cuts and warning the second-quarter loss from its cellphone business would be larger than expected.
Among individual fallers, UK-listed pay television broadcaster BSkyB and former state telecom company BT fell 7.5% and 2.7%, respectively, after the pair agreed to share live domestic rights to English Premier League (EPL) soccer from next year in a deal worth £3.018 billion, a 70% jump in value.
Commenting on the impact of the deal for BSkyB, UBS said: “This EPL outcome comes as a negative surprise, and we believe market expectations were for a favorable outcome. With increased competition from BT and downside risk to estimates, we would expect a negative reaction in the share price.”
Broad-Based Sell-Off
Equities are not the only asset class showing signs of tension as investors try to protect themselves from euro zone uncertainty and the outcome of the election in Greece over the weekend.
Spanish borrowing costs climbed to 7%, seen as unsustainable in the long term. Moody’s ratings agency slashed its credit rating on Spanish government debt by three steps to one notch above junk status and cut its credit rating on Cyprus’ sovereign debt by two notches.
And although Italy saw good demand at its most recent debt sale yield levels continued to rise.
“Even if we do get some certainty (out of Greece) over the weekend, I don’t think things will change dramatically and risk appetite will remain subdued,” said Peel Hunts’ Williams.
