European markets and reinsurers were hit hard in trading in the wake of the earthquake and tsunami in Japan.
Shares dropped to their lowest level in three months as the FTSEurofirst Index 300 lost 0.3%; on Friday it had fallen to its lowest close since the last day of 2010. Insurers were down over estimates of the damage caused by the quake, and the nuclear sector fell as well over safety concerns. But the euro itself was bolstered on surprise weekend action by euro zone leaders at a summit meeting to strengthen the European Financial Stability Facility (EFSF).
Munich Re and similar insurers declined the most as estimates kept moving upward of the damage incurred by the twin disasters, as well as the losses stemming from the problems with nuclear reactors in the region. Renault also dropped, since its partner Nissan shut down facilities in the quake region.
Saturday’s news that euro zone leaders had agreed to strengthen the bailout fund and also to lower interest rates for loans sent the euro rising against the dollar on Monday, and the cost of insuring Greek debt falling. Leaders agreed to increase the full lending capacity of the EFSF, nominally at 440 billion euros ($614.345 billion), so that it can actually lend that amount to peripheral nations in need. They also agreed to allow it to buy bonds from peripheral nations, and in addition concurred on lowering the rate of interest on Greece’s bailout loans.
Most of the peripheral euro zone nations saw a rally in their credit default swaps (CDS) after the action was announced. The exception was Ireland, which was not given any improvement in its bailout; instead, its CDS rose by 2 basis points.