‘No catalysts’ to dispel gloom on stock markets

Politicians have failed to grasp the nettle on radically increasing the Eurozone bailout fund and have evaded the issue of whether to solve the debt worries through a common “eurobond” in return for greater fiscal harmony between states, analysts say.

Richard Hunter, head of UK equities at Hargreaves Lansdown, said markets remained “definitely unimpressed” with the response of the politicians.

“Angela Merkel and Nicolas Sarkozy at their meeting last week just rehashed things that had been alluded to before. There was nothing tangible,” Hunter said. “Markets can deal with bad news, but not chronic uncertainty. And that is what we have got.”

The FTSE 100 closed down a further 1 per cent at 5040.8 on Friday after a rollercoaster day as investors were gripped by fear of a possible double‑dip recession in both the US and Europe. That followed on from a 4.5 per cent slide in the index on Thursday that wiped £62 billion off the shares of Britain’s biggest 100 companies.

The Footsie is now 17 per cent off its year high of 6105.7 – hit on 21 February – meaning it is hurtling towards a “bear” market which is informally described as a fall of 20 per cent.

Although the debt crisis in the US and Europe are grabbing the headlines, some analysts say the current financial crisis is largely a continuation of the 2008 near‑banking collapse rather than an even more serious problem.

Ewen Stewart, equity strategist at Investec, said government bail-outs of the banks three years ago had not resolved the fundamental problems. He said: “They gave an illusion of resolution through interest rates being slashed and quantitative easing being introduced. But it sent fiscal deficits up and created the current unsustainable debt situation.”

One market strategist said; “We saw in the UK, US and Eurozone last week that growth is not really happening. In the absence of concrete political plans to deal with the Eurozone debt situation and lower growth there are no reasons for these financial markets to move forward. There are no positive catalysts.”

The revised estimate of UK second‑quarter GDP growth is due to be released this week, which the City expects to be unchanged at a muted 0.2 per cent. Many in the markets are deeply disappointed that Germany and France did not commit to a radical increase in the Eurozone bailout fund.

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