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Difficult Day at the Paris Stock Market, Banks Get a Rough Ride

Translated Sunday 21 August 2011, by Gene Zbikowski and reviewed by Bill Scoble

The Paris stock market, fearing a recession in the U.S. and drying up financing of European banking, continued its fall on August 19. Financial stock and shares particularly sensitive to the economic situation suffered the most.

At 11:07 a.m., losses were limited on the main Paris stock index, the CAC 40, having fallen 1.81%, dropping 50.83 points to 3,025.52 points. It had fallen by as much as 4% in the course of the morning, following a 5.48% drop at the end of trading on August 18.

All of the European stock markets were pessimistic, although to a lesser degree than on August 18. Frankfurt fell 3.21%, London was down 1.99%, Milan fell 2.22% and Madrid 2.11%. “The fall was across the board, no share price resisted it, and aversion to risk remains very strong,” noted Franklin Pichard, the director of Barclays Bourse.

The main motive for panic among investors is fear of a recession in the U.S.

There has been no new start in housing, unemployment is rising again, and manufacturing activity in the Philadelphia area collapsed in August, inspiring fears of the worst for the nation’s factories, which have been the driving force behind the slow economic recovery over the past two years. While the analysts at Morgan Stanley believe that the U.S. economy is “dangerously close to a recession,” a goodly number of economists say they are more optimistic and anticipate instead weak economic growth.

Chinese vice president Xi Jinping said the U.S. economy is “resistant” during a meeting with his U.S. counterpart, Joe Biden, who is visiting Beijing.

Trading was perturbed by doubts about the capacity of European banks to refinance themselves. “The sovereign debt crisis implies that budgetary policies will be restrictive over the long haul in (almost) all the member countries of the euro zone,” the analysts ar Aurel BGC emphasized. “The sovereign debt crisis is generating the risk of a hardening, not only of market financing conditions, but also of banking conditions. The extent of the latter movement will depend on the length and the seriousness of the slowing down of economic activity,” they added.

The European central bank is putting on a brave face. Its top economist, Jürgen Stark, says he is “taking seriously” the signals of tension on the European interbank market, while assuring that the situation is not as serious as it was in 2008.

The European central bank had indicated during the night of August 18 to August 19 that, for the first time since February, it was granting a 500-million dollar loan to a European bank for seven days, renewing doubts among investors.

The banking sector, following the collapse of August 18, experienced a very difficult trading session, with BNP Paribas shares falling 3.95% to 32.86 euros, Société Générale 3.94% to 20.78 euros and Natixis 1.04% to 2.86 euros. Crédit Agricole managed to maintain the price of its shares (up 0.02%).

So-called cyclical shares, which are very sensitive to the economic situation, got a particularly rough ride against a backdrop of fears of a world economic slow-down. Renault fell 5.06% to 25.35 euros, Peugeot 4.01% to 18.37 euros, Michelin 3.99% to 45.76 euros, and ArcelorMittal 3.46% to 13.64 euros.

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