European Markets Tumble on August-Blues

European markets tumble for a second consecutive day after a gap-up opening was seen in European bench mark Index Dax. The reasons for this fall was attributed to the PMI data which came out on the 1^st August along with the results of the stress-test conducted by ECB which stated that the health of the banks in Italy, Spain and Austria are vulnerable to economic shocks. Dax stood at 10,336 high today and made a low of 10,165. Yesterday’s high was 10,472, while its low was read at 10,271. This clearly indicates that there is panic in the market.

Lenders in the benchmark Stoxx Europe 600 Index dipped 1.8 per cent, reversing a profit of 1.3 per cent. Britain’s Barclays dipped as much as 2 per cent which was recorded to be worse than Deutsche Bank AG which stood 1.8 per cent lower. UniCredit SpA fell 9.4 per cent. The worst performer in the regulator’s exam, Italy’s Banca Monte dei Paschidi Siena SpA soared 11 per cent as it cited that it planning to integrate private investors to help them catalyze its finances. It had pared a major chunk of its profit by day end.        

The stress-results have chosen to step in a time span when negativity is engulfing the industry. The shares this year have dipped the most among all sectors. This sector is a risky place to be in, due to low profitability and low rates.

Monte dei Paschi was the sole bank out of the lot of 51 to have been able to have its capital wiped out in the stress-test, which throws lenders into severe recession over 3 years. Therefore in the years to come it is clear that the financial institutions have to cut costs and strengthen their capital. A major question stands firm like a behemoth, “How much time until the next cycle in the banking crisis of Europe?”

Skepticism drove investors to the options market. A handful of investors indicate to low valuations as a reason to pick up shares of the lenders. If one is buying equity in banks, one ought to be confident about the outlook and the direction of the economy, and that seems to be a tough task at this point in time.