By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) — European stock markets pared back further in afternoon trading after a weak consumer-confidence number from the U.S. added to an earlier drop in economic sentiment for the euro zone, while U.K. banks and resource shares clung to gains.
The Stoxx Europe 600 index XX:SXXP +0.25% dropped to nearly flat at 228.62, following a gain of 1.2% on Monday, as U.S. stocks tumbled after data showed a plunge in consumer confidence for August, along with a tumble in the expectations barometer.
Mike Lenhoff, chief strategist at Brewin Dolphin, said stocks have been jittery in Europe amid a heavy week for on U.S. data. culminating in nonfarm payrolls for August on Friday. Economists polled by MarketWatch expect a rise of 53,000.
“It’s a really big week and what is really important now is what’s happening in the U.S.,” said Lenhoff. “If we get bad numbers, markets will take the view recession is on the cards. If the figures are a good surprise on the upside, or even if they’re more or less in line with expectations, markets may just hang in there.“
Among the bigger declining stocks in Europe, shares of heavily-weighted Swiss food group Nestle SA NSRGY -3.23% CH:NESN -.00% dragged on the downside, falling 1.4%. Sanford C. Bernstein cut the stock to market-perform from outperform, the first time it has changed its rating since it began coverage in 2002.
Bernstein analyst Andrew Wood said Nestle’s dual safe-haven status — a reliable global consumer-staples company in a time of market turmoil, and a Swiss franc investment in a time of currency upheaval — has pushed valuations too far. Wood also cited weak cash flow.
Europe had its share of gloomy economic news as well. Earlier, the European Commission said its economic-sentiment indicator fell to 98.3 in August from 103.0 in July, whereas economists had been expecting a more modest drop to 100.5.
ING economist Peter Vanden Houte noted that the index saw its biggest month-on-month fall since December 2008. The consumer-sentiment index stumbled more than 5%, to minus 16.5 from minus 11.2 in July.
“All in all the current level of the economic sentiment indicator, if confirmed in September, probably indicates that the recovery in the euro zone has come to a standstill,” he said in a research note, adding that the region is now probably facing a long period of “low and stable interest rates,” as the only means of preventing a drop back into recession.
Among the biggest declining indexes, the German DAX 30 index DX:DAX -1.51% fell 1.2% to 5,596.63, pulling back sharply after U.S. confidence data. Shares that had made sharp gains the prior day fell, including utility stocks such as RWE AG DE:RWE -3.84% , down 3.1%, and E.On AG DE:EOAN -3.72% , down 3%.
L’Oreal shares slip
France’s CAC 40 index FR:PX1 -0.66% also fell, off 0.5% to 3,138.63, weighed by 1.% drop in shares of cosmetics group L’Oreal SA FR:OR -1.33% ahead of first-half results due later.
Bernstein’s Wood expects the results will be reasonable, but “insufficiently strong to sustain good performance in a stock which is already trading at a significant premium to most of its staples peers.”
Banks were mostly negative in Paris, with Societe Generale SA FR:GLE -0.75% off 1.2% and Credit Agricole SA FR:ACA -0.59% down 1%. Insurer Axa SA FR:CS +1.58% gained 1%, providing the bulk of support from financials.
Greek stocks were coming off Monday’s rally triggered by a friendly merger betweeen EFG Eurobank Ergasias SA and Alpha Bank SA, which sent many bank shares up by double-digits. The Athens General Index GR:GD -4.82% fell 4% after a double-digit gains the prior session.
Among the big decliners, EFG Eurobank sank 16%, while utility Public Power Corp. SA fell 8% as investors cashed in on Monday’s gains.
“We’re dealing with very illiquid markets at this stage,” said Lenhoff, who noted Greece has a very thin market. “It wouldn’t take much to move it one way or another.”
London plays catch-up
While Europe wobbled, London stocks caught up to the gains made by Continental markets in the prior session.
Royal Bank of Scotland Group PLC RBS +1.18% UK:RBS +7.63% jumped 7% after an upgrade to buy from hold at Deutsche Bank, which said the recent selloff across the sector had gone too far.
Shares of Barclays PLC UK:BARC +5.25% BCS -1.20% rose 5.5% and Lloyds Banking Group PLC UK:LLOY +6.34% added 6.3%.
Bank gains allowed the FTSE 100 index UK:UKX +2.16% to maintain gains, last up 1.8% to 5,224.13. While it pared back after U.S. confidence data, the index remained the outperformer in Europe.
Gains for resource-related stocks also helped, as shares of miners Anglo BHP Billiton PLC BHP -1.16% UK:BLT +3.17% rose 3.4% and Rio Tinto PLC UK:RIO +3.22% RIO -1.36% gained 3.4%.
