LONDON (ShareCast) - -Dutch government collapses
-Investors mull likely Hollande victory in French elections
-April PMI below forecasts

Unusually, politics instead of debt was the main worry in Europe through Monday as most major indices dropped sharply.

The government of the Netherlands has collapsed following a row over budget cuts and the Prime Minister Mark Rutte has tendered his cabinet’s resignation to Queen Beatrice. The yield on 10 year Dutch government bonds shot up 11 basis points to 2.43% on fears the country may lose its cherished AAA rating.

Meanwhile French bonds yields have remained stubbornly over 3% as the favourite in the country’s Presidential elections, the socialist Francois Hollande, came first in the opening round of voting at the weekend. His rhetoric has suggested an increase in government spending despite the obvious financing headaches that would cause.

Further enhancing today’s “risk-off” mentality was the Markit Economics services and manufacturing purchasing managers index. It came in at 47.4 for April, down from 49.1 in March and against a consensus forecast of 49.3.

We also learned that Spain’s economy shrank by 0.4% in the first quarter according to the Bank of Spain. Unsurprisingly, Spanish debt lost value, pushing the yield above 6%.

COMPANIES

Dutch companies have been badly hit by the political ructions at the top of government. The totemic bank ING dropped 6% while insurance giant Aegon fell 7%.

In Paris, electronic chip maker STMicroelectronics fell 13.8% after announcing restructuring at its joint venture with Ericsson.

On the benchmark Stoxx Europe 600 the weakest sectors were construction and materials (-3.74%) and automobiles and parts (-3.63%).

OTHER MARKETS

Front month futures contracts on a barrel of Brent crude had fallen 0.93% by 16:57 in London to sit at $117.65.

At 17:07 london time the euro had fallen 0.66% against the dollar to hit $1.3132.

BS

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