ETFs indexed to Spain and Italy were down 5% in U.S. trading Monday and global stocks fell sharply on worries a European summit later this week won’t produce any meaningful steps to battle the debt crisis.
“European leaders will meet in Brussels on Thursday and Friday in a latest attempt to stabilize sovereign debt markets and their economies,” said JP Morgan Funds chief global strategist David Kelly. “They will likely agree to some ‘growth’ package and contemplate measures to protect banks across the Euro Zone. There will also be a potentially historic discussion about a path to both common fiscal policies and shared liability for sovereign debt.”
The iShares MSCI Italy (NYSEArca: EWI) and iShares MSCI Spain (NYSEArca: EWP) were both down about 5% in afternoon trading Monday. Global X FTSE Greece 20 ETF (NYSEArca: GREK) slipped 7%.
“Without a substantial growth package (that would boost the collective Euro Zone budget deficit by something in the order of 2% of GDP, with most of the largesse aimed at the peripheral nations), Europe may not be able to restart its economy,” Kelly wrote in a weekly outlook. “Without economic progress, it is hard to see European citizens embracing the radical measures required to achieve financial stability in the long run. Expectations should be low going into this summit, a reality that, in turn, provides the potential for an upside surprise for European stocks.”
Moody’s plans to cut the ratings of all Spanish banks following the recent downgrade of Spain’s sovereign debt rating, Reuters reported Monday.