European markets echoed their Asian peers as they dropped deep into negative territory in opening deals Thursday over escalating fears that Greece's debt crisis could be worsening after talks about a new aid package failed to make any progress. Despite trimming losses in afternoon trade, buoyed by a similar bounce-back on Wall Street amid a raft of economic data, London’s FTSE 100 closed at a 3-month low.
The UK benchmark index closed 42 points weaker at 5,701, an overall slide of 0.7%, while the FTSE 250 index dropped 132 points or 1.1% to 11,632.
In Athens, Greek Prime Minister George Papandreou said late Wednesday that he would create a new government today after protests against austerity measures turned violent. Papandreou stated without political agreement in the country that a Greek-debt default could occur in July.
Across the pond, initial jobless claims last week fell by 16,000 to 414,000 seasonally adjusted, beating expectations of only a 7,000 drop. Despite the weekly drop, the fact that claims are still higher than 400,000--the level which generally indicates the economy is adding more jobs than losing them—still gives investors some concern. Housing starts in the U.S. also showed signs of improvement, increasing by 3.5% in May to 560,000, seasonally adjusted.
The Commerce Department, however, reported that the U.S. current-account deficit widened in the first quarter of 2011 to $119.3 billion compared with the $112.3 billion gap in the fourth quarter. The increase in imports exceeded that of exports and brought the trade deficit to $140.8 billion from $118.7 billion. The U.S. deficit now amounts to 3.2% of GDP compared with an earlier mark of 3.0%.
Meanwhile, the Philadelphia Federal Reserve's manufacturing index dropped to negative 7.7 in June from a May reading of 3.9. The June level is the worst in 31 months and counters what was expected to be a positive reading of 5.5.
Returning to the UK, the top tier of the market resembled Wednesday’s picture with only a handful of companies staying out of the red. This time round Glencore (GLEN) was among them, 0.6% higher, having dropped more than 10% over the two previous sessions as excitement over talk of a bid for Eurasian Natural Resources (ENRC) receded. Glencore has denied it is preparing an offer for the Kazakh miner and will therefore be prevented from bidding for six months under UK takeover law.
Glencore’s peers, however, all succumbed to losses as metal prices continued to lose value, with palladium dropping 4% amid stubborn demand fears. Lonmin (LMI), Kazakhmys (KAZ) and ENRC shed 2.8%-3.4% apiece.
Retailers were also under pressure after British retail sales were shown to have fallen doubly-as-fast as expected last month. Tesco (TSCO), Next (NXT) and Kingfisher (KGF) closed down 1.7%, 1.6% and 1.5%, respectively.
