Europe chemical stocks dragged down by Greece referendum

01 November 2011 11:46  [Source: ICIS news]

LONDON (ICIS)--Stocks in the European chemical sector were dragged down by a sharp fall in the global markets on Tuesday, on news that Greece will hold a referendum on the latest bail-out package to solve its debt crisis.

Eurozone leaders on 27 October agreed a deal involving a 50% writedown of Greek debt, amounting to around €100bn ($139bn), alongside a second bail-out rescue loan of €130bn.

However, Greek prime minister George Papandreou said on Monday his country will hold a referendum to vote on whether to accept the new deal, following large-scale protests in Greece against austerity measures demanded by the EU. There are now concerns that the Greek electorate will prevent the deal from going ahead.

At 10:37 GMT, the UK’s FTSE 100 had slumped by 2.36%, Germany’s DAX was down by 3.72%, and the CAC 40 in France had fallen by 3.67%.

At the same time, the Dow Jones Euro Stoxx Chemicals index was trading down by 2.98%, as shares in many of Europe’s major chemical companies fell.

Top European producers were hit hard – German major BASF’s shares had dropped by 3.35%, Bayer had fallen by 2.61%, Dutch coatings firm AkzoNobel was down by 2.89%, and France’s Arkema had fallen by 5.22%.

Belgium’s Solvay had fallen by 5.95%, France-based industrial gases company Air Liquide was down by 1.37%, and Germany’s Linde was down by 2.83%.

Catalysts maker and precious metals trader Johnson Matthey of the UK was down by 3.57%, while Swiss specialties maker Clariant was trading down steeply by 7.35%.

Markets were also rattled by news on Monday that the US brokerage firm MF Global has filed for Chapter 11 bankruptcy protection after it revealed it had incurred huge losses trading eurozone sovereign debt. According to an MF Global presentation, it has exposure totalling around $6.3bn in Italian, Spanish, Belgian, Portuguese and Irish debt.

Earlier on Tuesday, US crude futures prices fell by more than $2/bbl, undermined by a stronger US dollar and renewed European debt worries. At 09:12 GMT, December NYMEX light sweet crude futures (WTI) were at $91.55/bbl, down by $1.64/bbl from the previous close. Earlier, the US benchmark fell to a session low of $91.13/bbl, down by $2.06/bbl.

December Brent crude on London’s ICE futures exchange was trading at $108.01/bbl, down by $1.55/bbl from the previous close. Earlier, the North Sea benchmark fell to a session low of $107.62/bbl, down by $1.94/bbl. The US dollar strengthened against the euro and other leading currencies on Tuesday, making dollar-denominated commodities such as crude more expensive to overseas investors.

Equity markets fell sharply, with the Nikkei 22 Index in Japan closing 1.7% lower at 8,835.52, down by 152.87 on the previous day. In early trade, the FTSE 100 index in London was trading 2.42% lower at 5,410.21, down by 137.06.

Meanwhile, growth figures from the Office for National Statistics showed that the UK’s GDP grew by 0.5% in the third quarter of 2011.

“The UK economy appears to have recovered from the temporary factors that almost ground the economy to a halt in the second quarter,” said Azad Zangana, European economist at investment bank Schroders.

“While we are not forecasting a recession in the UK in the near-term, risks are escalating as the European debt crisis appears to have taken a nasty turn. Despite the good package announced last week by eurozone leaders, last night's shock announcement from the Greek prime minister that Greece will hold a referendum on the package risks a disorderly outcome,” Zangana added.

“Uncertainty has returned once again to markets. No doubt that the phone lines between Berlin, Paris and Athens will be ringing hot today,” said Zangana.

Additional reporting by James Dennis

($1 = €0.72)

By: Franco Capaldo
+44 (0)20 8652 3214

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