Europe, Asia plunge; rocky week ahead

By Andrew Rosenbaum

Asian and European markets plunged today starting off an expected rocky week for the stock markets around the world. Markets in Asia tumbled with the knock-on from last week in the US, the worst week for U.S. stocks since 9/11 with the Dow falling 157 points on Friday. European investors were concerned about rescue plans for banks underway in Germany, the United Kingdom, France, Belgium, and Iceland.

Overall, market sentiment is dominated by fears of global recession and the uncertainty about the success of the $700 billion Paulson bank rescue plan in the US. The outlook for the U.S. economy was grim after figures released Friday showed that 159,000 jobs in the U.S. were lost last month, the largest per-month amount in more than five years. The price of oil has also fallen 4.5% to $89.60 on recession fears.l

US stock futures down

U.S. stock index futures are down in international trading with Standard & Poor's 500 Index futures dropping 29 points, or 1.7%, the Dow Jones Industrial Average futures falling 234 points, or more than 2%, and the Nasdaq 100 Index futures down nearly 1%, an indication that US markets may be expected to open poorly.

"The overall impact is going to cross all sectors and affect all markets with the prospect of slowing demand weighing on all the heavyweights," said Matthew Buckland, a trader at CMC Markets in London in a note.

Asian Markets at 2004 levels

In Asia, The MSCI Asia Pacific Index dropped 5.3%, its worst fall since January, 2008. Japan’s Nikkei 225 Index ($JP:N225) dropped 4.3 at its lowest close since February, 2004. Hong Kong’s Hang Seng Index ($HSIX) fell 3.35%.

Stocks have fallen to levels where they no longer reflect Japan's economic fundamentals," said Kazuki Miyazasa, equities analyst at Daiwa Securities SMBC in Tokyo told Reuters. "But investors are hesitant to pick up stocks as long as there are worries about the financial sector."

Financials felt the scorn and the pain worst again today, with Mitsubishi UFJ Financial Group (MTU, news, msgs) dropping a record 9.9% in Tokyo. Mizuho Financial Group Inc. dropped 8.7%. Macquarie Bank (MQBKY, news, msgs), Australia’s largest, lost 7%.

In Europe, falling euro and bank rescues daunt investors

In Europe, investors were daunted by the euro’s loss of value; the euro hit a 13-month low against the dollar with a rate cut from the European Central Bank expected any day.

Investors also worried over the perilous progress of banking rescue plans around Europe.

In Germany, prime minister Angela Merkel appeared on television on Sunday to announce a guarantee of all private banking accounts—an amount valued at more than $700 billion. Merkel also announced that a $20-billion rescue plan for beleaguered mortgage lender Hypo Real (HREHF, news, msgs) had been agreed to with government and private bank participation—the near failure of such a plan over the weekend sent a wave of panic through the international banking system.

The rescue of Belgian bank and insurerFortis (FTZBF, news, msgs) was also assured this morning, as France’s BNP Paribas (BNPQF, news, msgs) bank announced that it would buy a large part of Fortis’ assets for about $20 million. The Dutch government has nationalized the remaining assets. The move makes BNP Paribas the largest bank in the euro zone in terms of deposits, but the Belgian government remains the largest shareholder in Fortis.

In Iceland, prime minister Geir Haarde is putting together a partial nationalization of the island’s entire banking sector.

In the UK, chancellor Alasdair Darling announced a plan to recapitalize all of the UK’s banks using taxpayer funds, a move that is also being considered a partial nationalization of the entire sector.

London lead European markets down

European markets reacted with sharp drops. The FTSE Eurofirst Index fell 4.97%; the Dow Jones Stoxx 600 Index tumbled 3.9%, and London’s FTSE 100 ($GB:UKX, news, msgs)dropped 5.1% bringing it below levels last seen in 2004.

Switzerland’s UBS (UBS, news, msgs) dropped 8.6% on a note from Oppenheimer & Co. analyst Meredith Whitney said its revenue potential may be limited in the future.UBS chairman Peter Kurer announced at the same time that he is taking a pay cut of 50%.

The picture was much the same around the Continent: Commerzbank in Germany lost 15.4%; Deutsche Bank (DB, news, msgs) fell 6.2%; and France’s Societe Generale (SCGLY, news, msgs) 6.8 per cent to €64.

Nor was the picture different in the UK. In London, mortgage lender, HBOS (HBOOF, news, msgs), due to merge with retail bank Lloyds TSB (LYDBF, news, msgs), fell 15% and Lloyds lost 4.9%. Royal Bank of Scotland fell 9.8%.

Bofa, Wachovia, Eli Lilly

There is little reason to suppose anything but a weak opening in US markets today, but there are some things to watch for. Quarterly results will be announced today General Electric (GE, news, msgs) and from a number of retailers including Safeway (SWY, news, msgs). Bank of America (BAC, news, msgs) obtained an $8.6 billion settlement of claims brought by the state attorney-general involving loans originated by Countrywide Financial Corp. The bank will restructure troubled mortgages and enable nearly 400,000 Countrywide Financial Corp. clients to keep their homes.

And Eli Lilly (LLY, news, msgs) is set to acquire ImClone (IMCL, news, msgs).

Separately, Wachovia (WB, news, msgs) bank is reportedly to be split between Citigroup (C, news, msgs) and Wells Fargo (WFC, news, msgs), in an agreement brokered by the Federal Reserve.