Cyprus worries halt European shares’ winning streak
By Sudip Kar-Gupta
European shares edged lower on Friday after four days of gains, with some traders citing concerns that Cyprus may need more bailout money as the main factor weighing on markets.
The pan-European FTSEurofirst 300, which had risen for the last four sessions, slipped 0.3 percent to 1,189.31 points, while the euro zone’s blue-chip Euro STOXX 50 index declined 0.6 percent to 2,659.14 points.
European Union finance ministers are meeting on Friday and Saturday, with Cyprus’ bailout among the top items on the agenda.
Luxembourg’s finance minister reiterated on Friday that Europe and the International Monetary Fund could not increase their 10 billion euro ($13.13 billion) contribution to the bailout, but worries remain over Cyprus’ economy.
Cyprus and the European Union have agreed in principle how it will provide its 13 billion euro contribution to a bailout package, although that number is almost twice the original figure because of its sharp recession, fuelling concerns about whether the sums will add up in the longer run.
“There is the potential that Cyprus may need more money, and that may be a reason for investors to book a bit of profit on the back of the recent strong run,» said Central Markets chief strategist Richard Perry.
Toby Campbell-Gray, head of trading at Tavira Securities, said investors were generally nervous ahead of the minister’s meeting, in the wake of the strict bailout conditions imposed on Cyprus which hit wealthy Cyprus bank depositors.
“There is zero confidence in the EU finance ministers to come up with the correct solution. Is Cyprus a worry? Yes, but it’s less of a worry than the fact that we may see another crazy course of action from the EU finance ministers,» he said.
Slovenia worries grow
Pledges of liquidity from the European Central Bank (ECB) have supported European equity markets over the last year, with the FTSEurofirst 300 up some 5 percent since the start of 2013.
But the troubles in Cyprus have highlighted how far the region’s sovereign debt crisis may still have to run. Bad loans in Slovenia’s banking sector suggest it may be next in line although Eurogroup chief Jeroen Dijsselbloem said the country was not on the agenda for Friday’s meeting.
The festering uncertainty over the euro zone’s economy caused the STOXX Europe 600 Banking Index to slip 1 percent to make it the worst-performing equity sector.
The STOXX Europe 600 Insurance Index also fell 0.9 percent, as reinsurer Swiss Re dropped 8.7 percent, although traders said this was mainly down to the fact that Swiss Re went ex-dividend on Friday, after which investors will no longer qualify for its latest dividend payout.
Although most traders and investors expect European equities to rise gradually over the course of 2013, some expect a pull-back in the second quarter as many investors seek to cash in on the rally since the start of the year.
Tracy Knudsen, senior vice president at technical trading analysis firm Lowry Research, said the Euro STOXX 50 and German DAX indexes could both lose ground in the near term.
She said the Euro STOXX could go back to its November levels of around 2,430 points if any decline in the coming weeks pushed it below the 2,600 point level.
“The poor internal condition of the markets in the European region warns of the increased risk of a further breakdown in the coming weeks,» she said.