Re-election joy eclipsed by worries over Eurozone and US economies

UK stocks fell sharply yesterday after bleak forecasts for the Eurozone economy and fiscal problems in the United States eclipsed initial relief over US President Barack Obama’s re-election.

In morning trade the FTSE 100 had hit a level not seen for nearly two months as the Obama win fuelled hopes the US Federal Reserve would maintain its loose monetary policy.

But the European Commission’s forecast that the Eurozone economy would barely grow next year kick-started a long slide into the close for indexes across Europe.

And while investors were relieved over Obama’s victory, they remained concerned about the US “fiscal cliff” of about $600bn in spending cuts and tax hikes set to begin early 2013, which could jeopardise growth.

“The fact that the election had gone swimmingly, there were no glitches, it was a clear winner, had helped markets open higher,” Angus Campbell, head of market analysis at Capital Spreads, said.

“Then you get the downgrades to GDP (gross domestic product) for the euro zone and then you get the US markets opening ... that turned the focus onto the fiscal cliff and suddenly you get this huge sell-off.”

The FTSE 100 eventually closed down 1.58 per cent, or 93.97 points, at 5,791.63.

No sector was spared the sell-off. European stocks geared to the economic cycle gave most ground, with miners, energy stocks and banks all off 2 per cent.

French bank BNP Paribas managed to buck the weak trend adding 1.1 per cent, buoyed by strong quarterly earnings.

“Today’s movements show us just how fickle investors are,” said IG’s David Madden.