Howard Wheeldon Comments: European Stocks Post Biggest Weekly Drop Since July - Bloomberg News Online

Bloomberg News Online, November 2, 2009

European stocks posted their biggest weekly drop since July amid concern the European Union may impose restrictions on financial companies in return for government aid and speculation a near eight-month rally in equities has outpaced the prospects for growth.

A Bloomberg poll this week showed the rally in stocks, which has sent the MSCI World Index up more than 60 percent from its March low, had failed to convince investors and analysts that it's time to take on more risk or dispel their concerns about U.S. economic policies and its banking system.

Only 31 percent of respondents in the survey see investment opportunities, down from 35 percent in the previous survey in July. Almost 40 percent in the latest quarterly survey said they are still hunkering down.

National benchmark indexes fell in 16 of the 18 western European markets. France's CAC 40 retreated 5.3 percent and the U.K.'s FTSE 100 slid 3.8 percent. Germany'sDAX Index slumped 5.7 percent, the steepest weekly decline since February. The U.S. economy returned to growth in the third quarter following the worst contraction in seven decades, according to a Commerce Department report yesterday.

As the economy stabilizes, governments and central banks are preparing to remove stimulus measures after spending a total of $12 trillion, by International Monetary Fund estimates, to haul economies out of the recession. The Federal Reserve this week completed its $300 billion Treasury-purchase program amid signs the seven-month buying spree helped support the housing market and limited increases in borrowing costs.

European Central Bank council member Axel Weber signaled the bank may start to withdraw its emergency stimulus measures next year, while Norway's Norges Bank became the first European central bank to raise its key interest rate since the credit crisis started to abate.

“October certainly brought a mix of good and bad news for the markets,” Howard Wheeldon, a senior strategist at BGC Partners in London, wrote in an e-mail to clients. “We are bound to see a more formal correction to the stock market euphoria we have witnessed in global markets at some point soon.”

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