European stocks fell on Monday, led by insurers on expectations a huge hurricane in the United States would boost damage claims, while political jitters in debt-laden Italy cast shadows on the euro zone. Reinsurers Swiss Re and Hannover RE led a weaker European insurance sector index as the market tried to predict the cost of cleaning up after Hurricane Sandy, which has forced Wall Street to shut.
"We are seeing insurers slide and we've sold a bit of Aviva and RSA," Ed Woolfitt, head of trading at Galvan Research, said. "(It's all) tentative at the moment until we can gauge how much of an impact it is really going to have. The euro zone issue is still bigger in our eyes at the moment."
Euro zone bluechips shed 0.7 percent to 2,478.84 points after former Prime Minister Silvio Berlusconi threatened to bring down his successor Mario Monti's government, which has appeased financial markets with its austerity agenda. Italy's FTSE MIB fell 1.5 percent, the worst performer in western Europe, weighed down by banks, which have the largest exposure to the country's debt.
The Euro STOXX 50 volatility index, which gauges option prices on euro zone bluechips and is regarded as a measure of investor fears of future price swings, rose 4.9 percent to 23.22 points. The index has risen 21 percent from a six-month low hit in mid-September, when the European Central Bank and the US Federal Reserve had calmed markets with plans to tackle the euro crisis and shore up the US economy, respectively. It was still well below a 2012 high of 38 hit in early June.
"If Berlusconi pulls the plug we can have a pretty difficult autumn but central banks have all the power they need to stop (contagion)," a London-based volatility trader said. "I'm long (volatility) because it's usually okay to buy at these levels but I would sell any spike because no-one seems to expect equity markets to tumble."
Among investors looking to bet on new gains was Galvan's Woolfitt, who was buying shares in motor insurer Admiral , estimating that the stock had already discounted gloomy sales figures and outlook statements from auto makers after it fell 7.3 percent in the past nine sessions. A profit warning from Japan's Honda Motor triggered a sell-off in the European auto sector on Monday, with France's Peugeot shedding 7 percent and Germany's Daimler down 1.8 percent.
The pan-European FTSEurofirst 300 closed 0.3 percent lower at 1,093.57 points in volume 62 percent of its 90-day average as Wall Street was closed. Swiss bank UBS topped the index, rising 7.3 percent in volume four times the average, after media reports the firm would announce up to 10,000 job cuts as it takes the knife to its investment banking operations.
"Despite the positive early market reaction to reports that UBS is undertaking a radical restructuring in its investment bank, we believe it still does not do justice to the potential significant capital release and re-rating that could take place, if this plan is true," Espirito Santo's analysts said in a note. "We accept that there is likely to be material book value erosion from restructuring and wind-down costs, but do not believe these will come close to erasing the estimated 20 billion Swiss francs ($21.35 billion) capital released from the plan by 2016."
Comments
Comments are closed.