WSJ:GLOBAL MARKETS: Euro, Markets Lose Steam After Euro-Zone Data
-- European stocks pare gains, euro loses steam following data
-- U.K. inflation print dents gilts, while sterling gains
-- Eyes now on U.S. open, retail sales
By Nina Bains and Michele Maatouk
European stocks pared gains Tuesday while the euro lost steam as data for the currency bloc showed economic growth fell back into contraction, renewing fears that the euro zone faces an uncertain future.
Euro-zone gross domestic product data fell 0.2% in the second quarter from the first, dampening the initial positive reaction to better-than-expected economic growth figures for Germany and France. This caused the euro to lose steam and trade at $1.2360, having peaked at $1.2386 earlier in the session, but still above $1.2332 late Monday in New York.
"The decline in euro-zone GDP in the second quarter is likely to be the first leg of a technical recession," warned Martin van Vliet, economist at ING Bank, who added, "The ongoing recession in large parts of the periphery will continue to hold back euro-zone growth."
At 1045 GMT, the benchmark Stoxx 600 index was up 0.5% at 270.05. Germany's DAX was 0.3% higher at 6966.83 and France's CAC-40 gained 0.5% to trade at 3443.72.
Meanwhile, a fall in German economic expectations added to the downbeat mood, as it hit the lowest level this year. The Center for European Economic Research's closely watched sentiment indicator fell to -25.5 in August from July's unrevised -19.6. The reading signalled something of a reversal after the index had shown an improvement over the previous few months, stoking fears that Germany's economy is set to cool.
"The bulk of analysts still expect the situation in Germany to remain unchanged over the next half year. But 39.5% of survey respondents expect worsening conditions," said Evelyn Herrmann, an economist at BNP Paribas.
The U.K.'s FTSE 100 also traded a touch off highs after a higher-than-expected rise in the annual rate of inflation for July. The consumer prices index rose 2.6% on the year in July, compared with a rise of 2.4% in June. By 1040 GMT, the FTSE 100 was up 0.5% at 5861.97. The print sent sterling to a fresh August high against the dollar at $1.5728. Gilts slipped further immediately following the news.
Still, Newedge Strategy said the unexpected uptick in inflation should be regarded as a blip. "Today's inflation report is not expected to be an obstacle for further policy action in the coming months, as CPI is still expected to remain below the 2% target in the medium term," Annalisa Piazza of Newedge Strategy said.
Southern European nations were relatively calm as Greece completed its largest debt sale in two years, selling just over 4.063 billion euros ($5 billion) of 13-week treasury bills at an auction. The funds will be used to repay bonds held by the European Central Bank while also contributing to the general budget. It is hoped the money raised will be enough to cover Greece until it receives the next installment of financial aid from its international lenders by the end of September. The smooth debt sale meant that government bond yields for the currency bloc's financially stressed regions were stable, and by 1009 GMT, Spain's 10-year government bond yielded 6.79%, down five basis points, while Italy's equivalent bond had tracked down 1.5 basis points to settle at 5.87%.
At 1045 GMT, Greece's ASE composite was up 0.1% to 623.76, Spain's IBEX 35 was 0.6% higher at 7109.10 while Italy's FTSE Mib gained 0.6% at 14613.86.
On the corporate front, United Utilities surged 15% following reports that the company is being eyed as a potential takeover target. Elsewhere, Standard Life rose 6.7% after posting a better-than-expected 15% increase in first-half operating profit. On the downside, though, buildings materials company CRH slid 7% on the FTSE 100 after its first-half results, with analysts pointing to concerns about the company's second-quarter outlook.
U.S. stock futures indicated a positive open on Wall Street and by 1045 GMT, the Dow Jones Industrial Average front month futures contract was trading up 0.2% at 13165.0, while the S&P 500 futures contract was also 0.2% higher, at 1405.70.
Looking ahead to the U.S. open, retail sales will be the main highlight. These are due at 1230 GMT, along with producer price index figures, while business inventories are scheduled for release at 1400 GMT.
Among commodities, September Nymex crude oil futures were up $0.38 at $93.11 per barrel and the September Brent oil contract was up $0.45 at $114.05. Spot gold was at $1,613.20, up $2.30. Meanwhile, the September bund contract was down 26 ticks at 142.92.
