WSJ:GLOBAL MARKETS: Euro Tumbles, Spain Stocks Sink After Data Disappoint
--Manufacturing data for the 'periphery' disappoint, sending euro downward
--DAX and CAC surge, responding to US ISM manufacturing data
--But London's FTSE 100 takes a breather; Spain slumps
--U.S. dollar remains well bid against basket of currencies
By Andrea Tryphonides
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--The single currency sank and the two-year German bond yield hit a record low after euro-zone manufacturing data proved a sharp reminder that the euro-zone crisis is still rumbling on.
However, European stocks proved to be more resilient as bourses returning from the May Day holiday responded positively to surprisingly upbeat U.S. manufacturing data from the previous session.
The two-year Schatz yield slid to a record low of 0.078% while the euro sank against the dollar after the euro zone's manufacturing sector contracted in April at the fastest pace in almost three years.
Italian and Spanish 10-year government bond yields ticked up a touch and Spain's IBEX 35 index fell hard, dropping 1.1% to 6928.70. Spain's manufacturing PMI for April dropped for a fourth month in a row by a point to 43.5, a bigger decline than expected.
Commenting on Spain, European economist at BNP Paribas Ricardo Santos said, "The current level of the manufacturing PMI is consistent with further declines in activity going forward." He expects a 0.9% quarter-on-quarter decline in second-quarter gross domestic product in the second quarter for Spain as austerity measures start to take their toll.
Other equity markets were brighter. At 0815 GMT, the benchmark Stoxx 600 index was up 0.4% at 259.50. Frankfurt's DAX was up 1.0% at 6825.83 and Paris's CAC 40 gained 1.2% to 3250.27. However, London's FTSE 100, which gained 1.3% Tuesday on the U.S. data, fell 0.2% to 5802.14.
The main equity markets were boosted by the U.S. Institute of Supply Management's purchasing managers index reading for April, which topped forecasts. The index increased 1.4 points to 54.8 in April following a 1.0 point increase in March. This was also a boost for the dollar after the strong manufacturing data damped expectations of further stimulus measures from the U.S. Federal Reserve.
"The rebound in the ISM manufacturing index in April will ease concerns that the softer tone of the recent incoming economic data marked the start of another mid-year slump in growth," said Paul Dales, senior U.S. economist at Capital Economics.
Lloyds Bank's wholesale banking & markets team said there was reason to expect a better dollar performance if, as seems likely, this morning's European data continue to signal weakness, though the U.S ADP employment data this afternoon will probably be the main focus ahead of the nonfarm payrolls report on Friday. Euro-zone unemployment is expected at 0900 GMT, and may add to the already gloomy picture in the euro zone.
Meanwhile, earnings helped to boost sentiment across European equity markets. UBS surged 6.0% despite reporting a first-quarter net profit decline due to an accounting loss on its own debt. Analysts said its balance sheet looks strong and the performance in wealth management was pleasing.
In London, retailer Next PLC surged 2.3% following its first-quarter results. It reported a small but welcome rise in sales as its online operation continued to perform strongly.
On the downside, Vestas Wind Systems fell 10.3% after a much larger-than-expected net loss in the first quarter due to a low level of delivered turbines, too-high production costs and additional warranty provisions.
The U.S. dollar remained well-bid against the yen and euro as the U.S. economic data dampened expectations that the world's largest economy will need another quantitative easing program, while the disappointing euro-zone data weighed on the single currency.
At 0800 GMT, the dollar was at Y80.31, from Y80.09 late Tuesday in New York. The single currency was fetching $1.3177 from $1.3236 and against the yen was at Y105.84 from Y106.05.
Spot gold was at $1,654.60 per troy ounce, down $9.00 from its New York settlement on Tuesday. June Nymex crude oil futures, which rose to a five-week high of $106.43 per barrel on Tuesday, were off $0.36 at $105.80 a barrel and June Brent futures were down $0.11 at $119.55. The June bund was down 0.01 at 141.08, largely following the U.S. manufacturing data and subsequent fall in U.S. Treasurys.
-By Andrea Tryphonides, Dow Jones Newswires; +44-20-7842-9281; andrea.tryphonides@dowjones.com
