Energy, banks drive losses for Europe stocks
MADRID (MarketWatch)--A U.S. holiday thinned out volumes in Europe on Wednesday, with energy stocks in decline and banks lower as investors got jittery a day ahead of the European Central Bank meeting.
Also in the spotlight, Robert Diamond, the ex-chief executive at
The Stoxx Europe 600 index (SXXP) trimmed earlier losses, to end with a loss of 0.06 point, or less than 0.1%, at 257.33 after rallying 1% the prior day. U.S. markets were closed Wednesday for the Fourth of July holiday.
Energy stocks were pressured as oil prices pulled back from five-week highs reached Tuesday. Shares of heavyweight Norwegian oil and gas group
Investors were also jittery ahead of Thursday, when the European Central Bank and Bank of England are due to announce the results of respective meetings.
"The ECB is widely expected to ease [its] key rate by 25 basis points tomorrow, but we can't help thinking that additional market-friendly action is required from [ECB President Mario] Draghi to sustain this rally," said strategists at Deutsche Bank in a note referring to recent gains for equity and credit markets. Read preview of ECB, BOE policy meetings.
"The market is hoping that politicians have done enough to encourage the ECB to lend a hand. We suspect that they won't add additional support for now which may lead to some disappointment," the strategists said.
Private-sector activity across the 17-nation euro zone saw another sharp contraction in June, but the pace slowed from May, according to the Markit composite purchasing managers' index for the region. The Bank of England's Monetary Policy Committee is expected to add to its asset-purchase program, which is the centerpiece of its quantitative-easing strategy.
A separate survey by Markit showed the pace of growth in the U.K.'s services sector slowed in June.
Jitters over Spain again
Media reports citing European officials said a deal to send European aid of up to €100 billion ($125 million) to Spanish banks could be delayed until July 20, owing to the fact an audit of four banks in Spain is not done. It was hoped an agreement for the aid would be signed by July 9.
Investors are also cashing in on recent gains, said Predrag Dukic, senior equity sales trader at CM Capital Markets in Madrid. Last week's agreement by European leaders to take measures aimed at stabilizing Spanish banks and Italian bond markets triggered gains across European markets and helped bring yields lower.
"After some robust sessions, in what is a very low volume trading session, clients are taking profits," Dukic said. The yield for the 10-year Spanish government bond (10YR_ESP) rose 11 basis points to 6.36%. Those for Italy (10YR_ITA) (10YR_ITA) also rose 11 basis points, to 5.75%. Spain will auction 10, 3 and 4-year paper on Thursday.
Dukic said markets are also worried that with interest rates already low, with the key lending rate at 1%, the ECB may be running out of ammunition. He said as well, "rumors that the ECB may restrict the use of state-backed bank bonds for collateral operations have not helped to boost sentiment."
Another distraction for markets Wednesday was former Barclays Chief Executive Officer Bob Diamond, who began testifying in the afternoon in front of the U.K. Parliament's Treasury Select Committee. A day prior, he and the company's (RBS) (BCS) (BCS) (BCS) chief operating officer stepped down in the wake of the Libor scandal. .
Barclays slipped around 0.6%, but trading was choppy as markets parsed Diamond's testimony. Shares of
The FTSE 100 index (UKX) shed 0.1% to 5,684.47. Miner
Shares of E.On were downgraded by two brokers Wednesday. Analysts at Citi cut the energy group to sell from neutral, citing a deteriorating operating environment, while J.P. Morgan cut it to neutral from overweight, saying the shares are likely to pause for breath after an 18% rise in the past month
A day prior, the utility lifted its 2012 earnings outlook after settling a disagreement with Russia's OAO Gazprom (GAZP) over long-term gas-supply contracts.