Euro markets rise in response to ban on short selling
European stock markets fell when the markets resumed this morning following a ban on short-selling of some financial shares that has been introduced by Belgium, France, Italy and Spain.
The measure is aimed to bring order to the financial markets, which have seen another turbulent week. The four countries agreed the measure overnight and it is to be introduced immediately. All forms of short selling are covered by the ban. The ban will initially last for 15 days but could be extended.
The FTSE 100 in London quickly fell by one per cent, The German Dax slipped by 1.8 per cent and France’s Cac index was down by 1.6 per cent. However, each stock index had reversed these slides later in the morning’s trading.
Short-selling is when investors sell stocks that they don’t actually own for one price, causing the market to drop. They ten buy back these same shares and the difference is their profit. This practice was banned in the UK and the US in 2008, following the collapse of Lehman Brothers.
South Korea and Greece have both also banned short-selling recently. The move comes against a background of investor fear. Earlier this week, the European Central Bank announced that it would buy up bonds from Italy and Spain in a bid to reduce the yield on their government bonds.
In the US, the Federal Reserve announced that it would keep US interest rates close to zero for at least two years. Both measures were an attempt to anchor stock markets and reduce volatility.
However, many investors remain dubious about the effectiveness of the interventions from central banks and governments. Many analysts believe that the ban on short selling will only support share prices for a day or two and will not stop the sell-off of equities.
The ban on short selling in France comes after a week of major movements in the value of French stock and bank shares. Concerns that France could lead its triple-A rating led to a sell-off of French stocks and losses incurred by French bank Societe Generale meant that the bank had to deny that it was at risk of financial collapse.
The French Prime Minister, Nicolas Sarkozy will meet the German Chancellor, Angela Merkel on Tuesday next week to try and find a more effective and permanent solution to the eurozone debt crisis.
In the United States the markets had a better day yesterday with the Dow Jones index ending up 3.9 per cent on Thursday, helped by data showing a fall in the number of unemployment claimants.
Sign up to the Myfinances.co.uk newsletter to receive the latest financial news direct to your inbox.
Follow Myfinances.co.uk on Twitter: @news_myfinances
Comments
Newsletter sign up