Markets steadier as G7 steps in to curb fears over the yen

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European shares gained yesterday after the Group of Seven nations’ intervention to curb a rise in the yen helped reassure financial markets unnerved by Japan’s earthquake and nuclear crisis.

Turmoil arising from political unrest in the Middle East as well as the events in Japan has rocked equity markets.

In an effort to restore confidence to the markets, the G7 stepped in to weaken the Japanese yen which had soared to a record. The yen fell broadly following the intervention.

“The G7 intervention is calming the markets, but we still need a few days of consolidation to think we are over the worst of it,” Giles Watts, head of equities at City Index, said.

But traders said the market could succumb to further weakness in the weeks ahead because Japan’s nuclear crisis is far from over.

“Moving into the weekend break, there’s without doubt going to be a desire for traders to square-off risk. There’s going to be little desire to get caught on the wrong side of any panic reaction once the markets close,” said Yusuf Heusen, senior sales trader at IG Index.

Japan’s nuclear crisis continued to affect specific European companies. French engineering company Schneider, for example, gained 2.9 per cent, as traders said the company, which has a site in Leeds, would benefit from a push towards greater energy efficiency after the Japanese disaster.

On the downside, Germany’s E.ON fell 1.3 per cent after the company took its Unterwese reactor offline under Tuesday’s government decree in the light of events in Japan.

Other fallers on the European market included Spanish banks, following data from the Bank of Spain showed a jump in bad loans in January to their highest level in 16 years.

BBVA fell 1.6 per cent, against a 0.2 per cent drop on the STOXX Europe 600 banking index.

Caution also prevailed after China raised banks’ required reserves by 50 basis points, the third hike this year aimed at curbing inflation, in a move which caused a brief dip in European shares.

Analysts, however, reckoned the underlying fundamentals for European equities were still intact and that recent weakness represented a buying opportunity on attractive valuations.

On 12-month forward earnings both European and UK equities are inexpensive, both trading over 25 per cent below average, according to analysts.

Volatility in the market was heightened yesterday by the expiry of stock index futures, stock index options, stock options and single stock futures across Europe, a regular occurrence known as “quadruple witching”.