Europe stock fall but short sell ban boosts banks

Europe stock fall but short sell ban boosts banks

Paris: European stocks fell on Friday on fading hopes of fresh measures by the Fed to revive the struggling US economy, but an extension of a ban on short selling of financial shares boosted a number of euro zone banks.

At 2:28pm, the FTSEurofirst 300 index of top European shares was down 0.7% at 918.17 points, with its recovery rally from a 2-year low hit earlier this month losing steam following this week’s series of bleak macroeconomic figures.

Volumes were low, however, ahead of a speech by Ben Bernanke at the Jackson Hole central bank meeting, expected at 7:30pm, where the Federal Reserve chairman is seen stopping short of announcing further Fed bond buying.

With fading expectations Bernanke could flag a new round of quantitative easing, risk appetite was dropping on Friday and safe-haven assets such as gold resumed their rally.

A number of major euro zone banks were up, however, with Societe Generale rising 1.3% and UniCredit gaining 2.1%, lifted by the extended ban on short selling as well as market talk that the European Central Bank was buying bonds of peripheral countries again to calm fears over the euro zone debt crisis.

After the close on Thursday, Italy, France, Spain and Belgium extended their short-selling bans in a bid to stop the recent slump in bank stocks, and hinted the ban could be lifted by October.

“This has been a technical rebound, but there’s also a strong regulation dimension to this recovery," said Vincent Ganne, technical analyst at TradingSat. “Authorities wanted to stop the bleeding at all costs with the ban, but will it really work?"


The STOXX euro zone bank index has lost about 2% since the short-selling ban was put in place on 12 August, following the index’s 34% nosedive in three weeks.

The ban, which also prevents investors taking short net positions using futures and options based on equity indexes such as the Euro STOXX 50 and the CAC 40 , has hit derivatives desks, which cannot bet against the two indexes.

“The ban has prompted a number of people to use the DAX and DAX derivatives as proxies, to play the broad European market on the downside. These are the collateral victims of the ban," a Paris-based derivative trader said.

DAX futures have lost 5.8% since the ban was put in place, underperforming the Euro STOXX 50 futures, down 1%, and the CAC 40 futures, up 0.3% over the same period.

“Yesterday we saw huge sell orders in DAX futures. Investors were shorting the DAX. We could see the same trend today and especially this afternoon as most of the sell-orders came from the United States," a Frankfurt-based trader said.

“Whoever was selling yesterday may not be done yet."

Around Europe on Friday, UK’s FTSE 100 index was down 0.4%, Germany’s DAX index down 1.5%, France’s CAC 40 down 0.4%, Spain’s IBEX up 0.2% and Italy’s FTSE MIB up 0.5%.

The euro zone’s blue chip Euro STOXX 50 index was down 0.5%, adding to the previous session’s losses. The index’s chart has formed a triangle pattern over the past three weeks, and the exit of the triangle in the next few sessions will set the tone for the next big move, TradingSat’s Ganne said.

“That should give us a pretty clear indication of where the market will be heading, but even if we see a bit of a rebound in the short term, the trend for the next few months is on the downside.