Germany may have clobbered Brazil in the World Cup quarter finals last week and went on to become the first European team to win the event in Latin America, but things back home in Europe weren’t quite so rosy.
First, a sizeable Portuguese bank startled investors when it failed to make an interest payment on its short-term debt. Investigators have found financial irregularities at the bank’s parent company and don’t believe the problem is systemic, according to Barron’s.
“…but jittery investors didn’t hang around to find out the true picture. The missed bond payment sparked an indiscriminate sell-off among financials across Europe. Banks in countries at the periphery of the euro zone were particularly hard hit, but the ripples washed over markets at the core too.”
In addition, Reuters reported a Spanish bank cancelled its bond offering and Greece was only able to place one-half of its debt issue as a wake of uncertainty about Europe’s financial system buffeted investors.
Worries in Europe intensified when industrial production numbers came in below expectation. In Germany, production fell by 1.8 percent. In France, it was off by 1.7 percent. In Britain by 1.3 percent, and in Italy by 1.2 percent. Weak industrial production is a sign the European economy is struggling to find solid footing. By the end of last week, European financial companies had lost 3.7 percent of their value and the Stoxx Europe 600 Index was down 3.2 percent.
U.S. markets moved lower last week too, as reminders of Europe’s banking crisis renewed investor fear. Barron’s suggested investors’ skittishness also had something to do with the fact that Standard & Poor’s 500 Index has not experienced a 10 percent correction for more than two years. Corrections typically occur about every 25 months helping to, “…wipe out some of the frothy sentiment, reset expectations, and prepare the way for another move higher.”