Equities consolidate further as bank regulation fears weigh
Joshua Raymond, Market Strategist at City Index commented: "The weekend couldn't come any sooner for European equities after investors continued to get out of positions within the heavyweight banks and miners on fears that slowing Chinese growth and stricter regulations on risk taking within the banks could impact the speed of the global economic recovery.
Miners and Banking concerns
The mining sector has now lost 17% in the last two weeks having hit a 17 month high earlier this year whilst the banking sector has lost as much as 14% in the same period. This reflects a fairly significant correction of prices and the recent speculation surrounding moves by China to cool excessive growth and Obama's attack to curb bank risk taking has exacerbated this correction.
Obama's stricter regulations on bank risk taking is a major cause for concern as it could have significant implications on the ability of banks to return the types of profits investors have grown accustomed to before the credit crunch crisis hit
What is clear is that President Obama is trying to prevent another financial crisis that excessive bank risking taking played a major part in causing. What is not clear is how much of an implication will stricter regulation on risk taking have on the banks ability to return to stable growth and it is this uncertainty that is really hurting market confidence and banking shares.
VIX spikes
The Volatility Index, the markets main gauge of investor fear, has risen 25% this week, which gives a strong indication that events this week have had a fairly shattering affect on market confidence.
It has certainly been a week to forget for the markets after a catalyst of bad news including some unsettling earnings from Bank of America and Morgan Stanley which aligned with Obama's attack on bank risk taking has created an air of uncertainty for bank earnings in 2010.
Next week
The key now is when bargain hunters make their move. The equity falls of the last few weeks could be enough to wet bargain hunter's appetites and looking back at the market corrections of the last five months, we may be getting to the point where stocks could be looking cheap once again. However, if we were to break our December lows, there is every chance that this correction could gather pace and we may see further downside.
With a raft of important macro economic data and an FOMC meeting to come next week, many investors could still be feeling a little hesitant to come straight back into the markets next week.
The US earnings season continues with full vigour next week with Apple and Microsoft demanding a watchful eye."