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New York suffers falls: Morning market insights

The New York Stock Exchange fell overnight as political uncertainty in France and the Netherlands focused investors’ concerns back onto Europe’s government debt problems.

All industry sectors in the NYSE’s S&P 500 finished lower, with the biggest losses among commodity producers and consumer stocks.

“Markets are realising that messy European national politics could aggravate already complex economic and financial conditions,” Mohamed El-Erian, the CEO of Pacific Investment Management – the  world’s biggest bond holder, told Bloomberg.

The S&P500 Index fell 0.84% to 1366.94 overnight. The Dow Jones Industrial Average was also down 0.78% or 102.09 points to 12927.20.

The NASDAQ Index lost 1 %, or 30.00 points, to finish at 2970.45.

West Texas Intermediate (WTI) oil fell 0.78% to $US103.07 a barrel overnight.

Gold was down 0.23% to be trading at $US1639.10 an ounce.

The Australian dollar was flat overnight, buying $US1.03155 at 8.05am AEST.

Europe

European share markets suffered big falls overnight on the back of a decline in manufacturing in Europe and China.  Political instability was added to the mix when Dutch Prime Minister Mark Rutte offered to resign after budget talks fell apart. The move may trigger early elections.

The European PMI index, based on a survey of purchasing managers, fell from 49.1 to 47.4 in March. Anything under 50 indicates a contraction in manufacturing activity.

“There is every reason for this market to correct today,” Patrick Moonen, a senior strategist at ING Investment Management in The Hague, which manages $163 billion, told Bloomberg.

“The political environment in Europe has not improved over the weekend and we’ve had some weaker-than-expected macro data that is clearly disappointing. The overall market sentiment has turned bearish, but I am not at all concerned that this is more than a correction.”

The London FTSE 100 closed down 1.85% to 5665.57.

The German DAX was down 3.36% or 227.12 points to 6523.00.

The European Stoxx50 index was down 2.87% to 2244.83.

Markets are concerned political pressure will prevent the budget cuts needed to put European government debt on a sustainable path.  Francois Hollande, who is leading French President Nicolas Sarkozy in polls before the presidential election on May 6, said on Sunday the European Central Bank (ECB) should cut interest rates and begin lending directly to governments to promote growth. In Spain, where bond yields were edging above 6% overnight, officials have started to call for the ECB to intervene in the bond market to prop up demand again.

The head of Germany’s central bank, Jens Weidmann, says greater fiscal and monetary frugality, not the printing of money or intervening in bond markets, is the way to win back investors’ trust.

“Monetary policy is not a panacea and central bank firepower is not unlimited, especially not in a monetary union,” Weidmann said  overnight, according to Bloomberg. “We can only win back confidence if we bring down excessive deficits and boost competitiveness. And it is precisely because these things are unpopular that makes it so tempting for politicians to rely instead on monetary accommodation.”

Governments have consistently looked to the ECB to battle the debt crisis and Weidmann has consistently tried to slow the push. When the crisis spread last year to Italy and Spain, Weidmann opposed the ECB’s decision to intervene in bond markets and slammed a proposal to allow the region’s bailout fund to borrow from the central bank.

“The idea that the required money will be created through the printing press should finally be brushed aside,” Weidmann said in a speech in Berlin in December. “Doing that would threaten the most important foundation for a stable currency: the independence of a price-stability focused central bank.”

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