European shares slumped today, pressured by banks and commodity stocks, as mounting concerns about a prolonged global slowdown and weaker demand for oil and metals hurt market sentiment. The FTSEurofirst 300 index of top European shares closed 6 per cent down at 810.04 points after rising 13 per cent last week. The benchmark is down 46 per cent so far this year after posting gains in each of the previous five years.
Banks were the worst hit, with Standard Chartered Bank falling 14 per cent and UBS down 12 per cent, Fortis slipping 11 per cent and BNP Paribas declining 7.6 per cent. Commodities shares also slipped, tracking an eight per cent drop in crude prices, a 2.8 per cent fall in aluminium prices and a 1.6 per cent drop in copper prices, mainly on worries about global economic growth. "The short-term outlook is going to be very difficult, given the weakening growth forecast, falling corporate profitability and the softening labour market," said Henk Potts, equity strategist at Barclays Stockbrokers.
"What the market would need to see is the practical implication of the measures that have been announced starting to work through the system and having a positive result." A United Nations report said that world economic growth would slow to one per cent in 2009 from 2.5 per cent this year as the financial crisis bit, and the global economy might even contract if stimulus packages proved too little too late.
The financial crisis that began with a US housing market collapse last year has already knocked several big economies into recession, including the Euro zone. Most economists believe the United States and Britain will soon follow. European and Chinese industry activity slumped in November, Japanese officials said their economy was slowing rapidly and US factory activity fell in November to its weakest since the 1981-1982 recession.
"It is hard to see recoveries in stock markets as anything but short term at the moment, and traders seem to be too willing to jump out of rallies very quickly, ahead of the perceived next major sell-off," said David Jones, chief market strategist at IG Index. Central banks in Britain, the Euro zone, Australia and New Zealand are expected to cut borrowing costs sharply this week in response to the crisis.
Expectations for more rate cuts in Britain were underlined by the UK's PMI index showing manufacturing shrank at a record pace in November after a collapse in new orders. Miners tracked weaker metals prices. BHP Billiton, Anglo American, Vedanta Resources, Lonmin, Kazakhmys, Xstrata, Antofagasta and Rio Tinto fell between 7 and 18 per cent. Energy stocks were also down. BP, Shell, gas producer BG Group and Tullow Oil shed between 5.8 and 8.6 per cent.
Across Europe, the FTSE 100 index closed 5.3 per cent lower, Germany's DAX was 5.9 per cent lower and France's CAC 40 was down 5.6 per cent. * Reuters