Markets see big quarterly falls

30 September 2011 Last updated at 10:12 ET

By Damian Kahya Business reporter, BBC News Continue reading the main story

European stocks were down again on Friday, contributing towards one of the worst quarterly falls for the markets in the last decade.

Stocks in France and Germany have fallen in value by more than 25% since the end of June, while shares in London’s FTSE are down close to 14%.

That would be the worst fall quarterly fall for the FTSE since 2002.

The latest falls follow an unexpected rise in eurozone inflation for September to 3%.

Investors had hoped the European Central Bank would move to lower interest rates in the eurozone, after raising them in July to 1.5% to limit inflation.

However, the latest inflation figures make such a move less likely.

Eurozone worries

But Friday’s falls were just the latest bout of volatility in European markets, which have failed to regain ground since crashing at the start of July.

Economists say worries over the ability of eurozone countries to pay their debts are sparking concerns of a new banking and credit crisis.

“The euro-area debt crisis has potential ramifications to euro-area banking sectors in particular,” said Grant Lewis, head of research at Daiwa capital markets.

“’ve got concerns that a Greek default going wider into something more serious in terms of an Italian default, for example, that would leave banking sectors under-capitalised as well as having a calamitous effect on the economic outlook.”

The share falls have therefore been most pronounced in eurozone countries, with the FTSE falling less than benchmark German and French exchanges.

Shares in the US benchmark Dow Jones index fell by a little over 10% since the end of June.

The biggest impact was felt by banking stocks exposed to Greek debt and the debt of other countries – such as Portugal and the Irish Republic – at risk of default.

Shares in Germany’s Deutsche Bank and Commerzbank were both down by more than 30%.

Stocks in French banks fared even worse. Societe Generale saw its stock fall more than 50%, while BNP Paribas saw its share price fall more than 40%.

Worries ahead

German markets have seen some of the steepest falls

Despite the record quarterly falls, markets remain up on the levels they reached after the 2008 financial crisis.

“There are certainly widespread indications of pretty serious financial stress, but they are not by and large as dramatic as they were in 2007 and 2008,” George Magnus, European economist at UBS, told the BBC.

“Then, the whole edifice of the Western banking system was about to implode. At that point, I think it was far more dramatic than it is now.”

But investors and economists fear the situation may deteriorate further.

Markets are likely to look to forthcoming company results and quarterly economic data for their next move.

In the longer term, economists say they are seeking reassurance from politicians.

“I think markets are expecting something of substance to be revealed by the G20 [group of leading nations] in November and if it isn’t, we could be in a lot of trouble,” Mr Magnus added.

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