Still following Wall Street

Euro-zone shares have suffered a battering recently with some markets and sectors falling to six-year lows. Despite a shift in emphasis towards European shares the markets are still heavily influenced by Wall Street’s woes.

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So far this month all the main markets have suffered substantial falls with the MSCI EMU index down 11% in euro terms as of September 18th. Italy had only fallen 8% compared with 10% for France and 16% for Germany.

Business sentiment seems particularly negative, as illustrated by the August Ifo survey in Germany, compared with fund manager views. According to Morningstar’s European Fund Trends survey in August some 24% of managers expect the euro-zone to be the best performing market over the next 12 months.

But Europe largely echoed American sentiment in a climate of listless trade during the August vacatio

ns and over the anniversary of the September 11th attacks. The prospect of an American-led attack on Iraq has also unnerved the stockmarkets.

The markets are hoping that positive news from companies will improve sentiment - many firms are currently busy approving their quarterly accounts. Unfortunately the news so far from from companies is that their accounts are still unhealthy and profit warnings remain common.

Euro-zone investors continue to maintain a keen interest in the bond markets. Investors are hoping that fixed interest investments, particularly those with short term maturities, will benefit from lower interest rates or an improvement in the economic outlook.

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