Dubai: Global stock markets dived Monday as investors and ratings agencies delivered a withering verdict on last weekend's crucial EU summit and the ability of European leaders to contain the region's devastating debt crisis.
Moody's Investors Service expressed dissatisfaction at the outcome in Brussels and said it will review ratings for countries in the EU. Oil prices dropped and equity indices in Europe and the United States saw heavy losses.
London's FTSE-100 index fell 0.63 per cent, Frankfurt's Dax slumped 2.01 per cent and Paris' CAC 40 tumbled 1.5 per cent. US markets also fell sharply at the open.
Italian borrowing costs climbed significantly with yields on 10-year bonds approaching seven per cent. However, there was some respite for the Eurozone's third largest economy when it sold €7 billion (Dh34.39 billion) worth of 12-month bonds at an interest rate of 5.92 per cent, down from the 6.09 per cent it paid last month.
"The 17 members of the Eurozone may think the pressure was taken off as the press focused on [British Prime Minister] David Cameron's use of the veto but the markets are all-seeing," said Charles Purdy, MD for London-based Smart Currency Exchange.
Purdy says global equity indices will continue to be unforgiving unless politicians clearly address the underlying problems of government and bank debt, liquidity and solvency.
"Take Eurozone bank debt. Initially it was stated that they were fully capitalised apart from a few. The markets didn't believe this and said that they needed to be recapitalised to the tune of €100 billion. Needless to say the markets have been proved to be right," he said.
Initial enthusiasm over Friday's European deal is starting to give way to concern with most analysts agreeing that proposals to move towards greater fiscal union are insufficient to tackle the region's crippling sovereign debt crisis, especially in the short term.
Contrasting fortunes
Gerard Lyons, chief economist at Standard Chartered, told the UK's Daily Telegraph newspaper there will be a "two-speed world where a fragile West contrasts with a resilient East".
"The squeeze on real incomes and need to repay debt means people are not spending," he added.
Local sentiment was also affected by another dram-atic day across Europe despite the presence of a significant catalyst in the form of this week's MSCI announcement on whether the UAE and Qatar will be upgraded to emerging market status. The Dubai Financial Market General Index fell 0.63 per cent to 1,388.19 while Abu Dhabi's measure closed flat.
"As the peripheral countries continue to implement harsh austerity measures, it will undermine GDP growth. So we will not see growth in the Eurozone for a few years as long as this is the case," said Megan Greene, senior economist at Roubini Global Economics.
— With inputs from agencies
