European markets sell off on China growth fears

Joshua Raymond, Market Strategist at City Index commented: "European markets sold off on Wednesday with investors looking to move money out of their riskier holdings on concerns that slowing China growth may stunt the global economic recovery.

Poor earnings from Bank of America and Morgan Stanley has increased the nervousness of investors that the toxic loan crisis could continue to impact bank earnings in 2010 and this is also having a lagging affect on European equities today.

China growth fears

The speculation from China that they have made another move to cool excessive growth is a deep concern for the heavyweight miners and energy firms in Europe.

High demand for basic resources from emerging economies has been a key driver to equities in the current bull trend and with China recently rising bank its reserve rate by 50 basis points and today's speculation that they have asked major Chinese banks to curb their lending for the rest of January, there is a fear that this could significantly impact short term demand for metals at a time when they could be looking to increase supply and as such, investors have aggressively sold out of the miners as a precaution. As a result, the miners have led all of Europe lower today.

Bank earnings

Earnings from Bank of America and Morgan Stanley have not helped also today with both banks missing earnings forecasts and exacerbating fears that toxic loan issues may cloud the earnings picture still for 2010.

We now have had JP Morgan, Citigroup, Bank of America and Morgan Stanley all disappoint with their earnings and it will not take a rocket scientist to realise that it may not be all plain sailing for the rest of the banks.

We now move onto Goldman Sachs who announces tomorrow along with American Express and Capital One and unless we get some strong numbers, the banks will have had a fairly poor earnings season in the US.

Pharmaceuticals higher

Pharmaceuticals have again been in high demand, having gained well yesterday after the Republicans won a crucial seat in Massachusetts which may allow them to now potentially block Obama's healthcare plan, a result that has been generally seen as a positive for the big pharmaceuticals. Shire has been in strong demand for the last 24 hours as a result and leads today's gainers in London."