Markets: News  

Industrials weigh on Europe as data slump

London (MarketWatch)--Losses in shares of big manufacturing companies and miners drove Europe's stock markets south Wednesday owing to weak data in the euro zone and U.S. data, though Spanish stocks bucked the trend after retailer Inditex SA zipped higher on upbeat results.

The Stoxx Europe 600 index (SXXP) closed 0.4% lower at 242.56, after rising 0.6% the prior session. Wall Street were stocks mixed.

Markets dipped deeper into negative territory in afternoon action after U.S. retail sales for May fell a second month, marking the first back-to-back drop in two years. Retail sales fall in May for second month in row

SKF AB (SKFA) dropped the most in the pan-European index, off 7.3%, after the maker of rolling bearings cut second-quarter forecast due to weaker market conditions in Western Europe and Asia. The announcement stirred concerns that profit warnings from other industrials such as Swedish machinery firm Sandvik AB(SAND) and Atlas Copco AB(ATCOA) would follow. Shares of Sandvik dropped 5.3%, while those of Atlas Copco fell 3.4%. SKF cuts demand forecast

Major industrial companies and miners were also weighed by news of a 0.8% drop in euro-zone industrial production in April compared to March, taking the level of production down to the lowest level since September 2010. The drop was slightly milder than expected, but would have been steeper had it not been for a rebound in energy production, said Chris Williamson, chief economist at Markit in a note.

"The weakness of the official data and the PMI (purchasing manager's index) point to the need for further action to stimulate the ailing economy and prevent a further deepening of the downturn," Williamson said. "The PMI has fallen even deeper into territory which is historically consistent with rate cuts by the ECB, suggesting a trimming of the policy rate below 1% alongside further LTROs would be appropriate according to the macroeconomic data."

Swiss industrial conglomerate ABB Ltd. (ABBN) lost 1.7%. Vedanta Resources PLC(VED) fell 2.6% in London.

In Germany, Siemens AG(SIE) gave up 1.4%, weighing on the DAX 30 index (DAX) , which slipped 0.1% to 6,152.49.

Car makers were also weighing on the sentiment, with Daimler AG(DAI) losing 2.1%, Volkswagen AG(VOW) (VOW3) off 1.8% and BMW AG (BMW) 1.3% lower.

Stan Pearson, head of European equities at Standard Life Investment, said it doesn't make sense to focus on day-to-day turbulence for Europe, with the industrial production numbers just confirming what is known.

"Companies are not looking to invest and that's a confidence problem. What we're seeing is a degree of caution and that's understandable from the companies' perspective," he said.

European companies may, however, be in better shape than their current stock prices indicate, Pearson explained.

"The turbulence and short-term focus on the next ECB meeting or next bond auction are actually opportunities to look beyond what happens next week and closer look at companies, he said. "There are a lot of European companies that will do reasonably well compares to government bonds with yields between 2% and 0% or other asset classes in distress."

He mentioned Danish drug maker Novo Nordisk AS (NOVOB) and Dutch ASML Holding NV(ASML) as companies with strong investing stories at the moment.

Spanish stocks shine

Spanish retailer Inditex SA (ITX) also proved to be in decent shape despite difficult times for its home country, after first-quarter results beat forecasters' expectations, sending the stock 11.6% higher. The gain helped lift the IBEX 35 index (IBEX) 1.4% to 6,615.30, making it one of the few indexes in black for the trading day.

Yields on 10-year Spanish government (10YR_ESP) took on 4 basis points to 6.78%, after jumping to an all-time intraday high the prior day, according to electronic trading platform Tradeweb. A basis point is 1/100 of a percentage point.

Swedish retailer Hennes & Mauritz AB (HMB) rose 2%, further helping underpin the Stoxx 600.

Greek stocks also ended the day as a positive outlier, with the Athens General Index (GD) up 2.1% to 499.56. Leader of anti-austerity party Syriza, Alexis Tsipras, said in a post on the Financial Times that he is committed to keeping Greece in the euro zone and that "the need for giving Greece a chance for real growth and a new future is now more widely accepted than ever."

In France, power and transport firm Alstom SA(ALO) gave up 5%, while Schneider Electric SA(SU) slid 5.1%. The French CAC 40 index (PX1) fell 0.6% to 3,030.04.

Outside the main index in Paris, shares of Establissements Maurel & Prom SA (MAU) were the top Stoxx 600 gainer, up 17.7% on reports that Royal Dutch Shell PLC(RDS.A) (RDSA) is interested in buying the French oil group.

Faring less well in the retail space, shares of grocer J Sainsbury PLC(SBRY) fell 2.6% after a trading update failed to impress investors. Comparable sales excluding fuel increased 1.4% in the first quarter, while total sales rose 3.6%.

The FTSE 100 index (UKX) , added 0.2% to 5,483.81, as SSE PLC(SSE) took on 2.1% after Barclays lifted the stock to overweight from equal weight previously.

Miners weighed on the index: Xstrata PLC(XTA) fell 5.2% and Eurasian Natural Resources Corp. PLC (ENRC) lost 1.3%.