AB: Europe calm, Asian markets drop as Wall St readies for 4th of July
FRANKFURT, July 3, (Agencies): European stocks fell on Friday, recording their third straight week of losses, led by utilities, oil & gas and basic resources while banks and media pulled in the opposite direction. Volumes were thin in the absence of US market participants due to the extended Fourth of July weekend. “With US markets closed today for the Independence Day holidays we have seen the major indexes lack direction,” CMC Markets said in a note. “Major stock specific stories have also been hard to come by today,” CMC Markets added. The pan-European FTSEurofirst 300 index closed 0.1 percent lower at 842.52 points. It lost 0.2 percent over the week and has fallen 5.1 percent since its five-month high close on June 11. Utilities shaved most points off the index on Friday. EDF fell 4.5 percent after Morgan Stanley downgraded its rating to “equal weight” from “overweight”. UBS and Citigroup trimmed their price target on the EDF stock. Also in the sector, E.ON dropped 1.2 percent and GDF Suez lost 0.6 percent. Weaker oil and copper prices weighed on oil & gas and basic resources stocks amid renewed doubts about the outlook for economic growth triggered by weaker-than-expected US June jobs data on Thursday.
Banks added the most points, with Barclays up 2.8 percent, Banco Santander gaining 2.2 percent, BNP Paribas adding 2 percent, HSBC rising 1.7 percent and Deutsche Bank putting on 1.7 percent. Media stocks advanced after Credit Suisse upgraded the European sector to “overweight” from “underweight”. The DJ Stoxx media index rose 0.5 percent. Wolters Kluwer jumped 4.3 percent and Reed Elsevier climbed 3.9 percent. The DJ EuroSTOXX 50 index of European blue chips squeezed in a gain of 0.3 percent to 2,376.48 points. BayernLB chartists saw support at 2,350 points, saying in a technical analysis note that a break below that level would spark a clear “sell” signal. Europe’s top-300 index rose 35 percent between March 9 and June 11, as improving sentiment indicators buoyed economic recovery hopes, but has traded choppily in a narrow range since.
Strategists said that picture was unlikely to change much in the week ahead. “Next week brings too little quantitative or qualitative data to give stock markets any decisive direction,” said LBBW investment analyst Michael Kohler. Ad van Tiggelen, senior strategist at ING Investment Management, said “the road ahead will be bumpy for risky assets” such as equities, and LandesBank Berlin said stock market fundamentals remained fragile.
“We don’t want to rule out further setbacks. Nonetheless, we assume that many investors will exploit an eventual temporary weakness on the market and that as a result some liquidity which has not yet been invested will flow back into the equity market again,” Raiffeisen Research said.
Stefan Scheurer, capital markets analyst at Allianz Global Investors, spun on the same theme, saying investors with big cash allocations might use phases of stock market weakness to shift some money into equities.
Valuations could also lend some support. According to consensus data compiled by Goldman Sachs, European shares trade at on average 11.4 times 12-month forward earnings compared with a 10-year average of around 13.5.
UK
Britain’s leading equity index closed marginally higher on Friday as positive financial and defensive stocks outpaced weaker commodity shares, which tracked a decline in crude and metals prices.
The FTSE 100 index rose 2.01 points, or 0.1 percent, to 4,236.28 points in thin trading, with US markets closed for the Independence Day holiday.
“Volumes are light. There’s nothing going on. Everyone’s watching Andy Murray in the tennis,” said Jimmy Yates, head of equities at CMC Markets, referring to Murray’s semifinal match against American Andy Roddick at Wimbledon late on Friday.
London’s blue chip index finished the week lower for a third straight week, a pattern not seen since the lows of March. The index has jumped 22.4 percent since then.
Banks gained, rebounding after falls on Thursday.
Royal Bank of Scotland added 0.9 percent, while Barclays, HSBC and Lloyds Banking Group rose 0.9-2.8 percent.
“There’s a bit of bottom fishing going on out there, especially with the market’s inability to break the 4,200 support level,” said Yates.
Defensive stocks also found support as investors’ risk appetite faded following the US jobs disappointment, with tobacco and drug shares moving higher.
Asia
Most Asian markets fell Friday as a weaker-than-expected US jobs report signaled more pain ahead for the world’s largest economy. European stocks also weakened in early trade.
Losses across Asia were somewhat tame compared to Wall Street, where markets pulled sharply lower. Oil prices slipped further after tumbling overnight, while the dollar was flat against the yen.
Optimism about the US economy, a critical market for Asian-made goods, buckled after the government said employers slashed 467,000 jobs in June. That was far worse than the 363,000 that economists predicted and marked the first increase in monthly jobs losses since January. At the same time, the unemployment rate hit 9.5 percent, the highest since 1983.
Investors have sent markets surging in recent months after the global economy flickered to life as companies began restocking their inventories and international trade picked up modestly.
But the dreary news about America’s labor market just reinforced worries that a strong recovery in the US economy, even if the recession officially ends this year, was unlikely anytime soon.
“The fundamentals of the economy are still not sound,” said Arjuna Mahendran, head of Asian investment strategy at HSBC Private Bank in Singapore. “You’re going to see less and less of these green shoots.”
Mahendran said equity markets could fall between 15 percent and 20 percent in the coming months.
Asian markets, after starting in the red, managed to trim some of their losses.
Japan’s Nikkei 225 stock average dropped 60.08, or 0.6 percent, to 9,816.07, and Hong Kong’s Hang Seng closed up 25.35 points, or 0.1 percent, to 18,203.40 after trading in the red most of the day.
Australia’s benchmark fell 1.4 percent, and Singapore’s main index finished down 1 percent.
China’s Shanghai Composite index was largely flat. In Korea, the Kospi rebounded to close up 0.6 percent.
India’s Sensex gained 0.8 percent in afternoon trading after the government said Thursday the economy could grow by as much as 7.5 percent this year if the US recession bottoms out by September.
Despite recent losses, global markets just wrapped up one of their strongest quarters in years. India, China and other emerging markets were among the best performers as investors’ appetite for growth and riskier assets returned.
Oil
Oil prices fell further on Friday, but losses were less severe than a day earlier when traders had sold heavily on fresh worries about the weakness of the US economy.
Meanwhile oil market officials here launched a probe into an alleged rogue trader who this week helped push prices to eight-month peaks, costing his company nearly $10 million (7.15 million euros).
In late afternoon London trade, Brent North Sea crude for delivery in August dropped 52 cents to $66.13 a barrel.
New York’s main contract, light sweet crude for August delivery, dipped 47 cents to 66.26 dollars per barrel.
Crude futures had sunk more than two dollars on Thursday as weak US jobs data dampened hopes of a speedy economic recovery in the United States, which is the world’s top energy consumer.
“The US employment report was a negative for the oil price,” said David Moore, a commodity analyst with the Commonwealth Bank of Australia.
Data released Thursday showed US job losses surged to 467,000 in June, pushing the unemployment rate to a 26-year high of 9.5 percent.
Since the recession began in the United States in December 2007, the world’s biggest energy user has lost 6.5 million jobs and the jobless rate has risen 4.6 percentage points.
“Risk aversion returned with a vengeance yesterday after a disappointing US labour market report for June,” said Dariusz Kowalczyk, chief investment strategist with SJS Markets trading firm.
Oil prices are likely to remain under pressure until economic data points to a firm turnaround in US fortunes, which will in turn lead to stronger energy demand, analysts said.
“Beyond any help arising from equities... crude oil market fundamentals look fragile. No doubt, a rally in equities or a weaker US dollar could support higher oil prices,” Merrill Lynch analysts said in a report.
“But anyway you cut it, oil demand is still extremely weak.... In sum, we believe oil prices will struggle to push higher over the next three months,” they said.
A weak US unit makes dollar-priced oil cheaper for buyers using stronger foreign currencies, and this usually pushes up demand and crude futures prices.
ICE Futures Europe, London’s oil market, is meanwhile investigating Tuesday’s unauthorised trade, after which crude futures surged above $73 a barrel.
David Peniket, president and chief operating officer of ICE Futures Europe, on Friday said his body investigated unusual trading activity as a “matter of course.”
An oil brokerage, PVM Oil Associates, said on Friday that it was investigating suspected unauthorised trading within its company.
PVM was forced to unwind the series of unauthorised trades — a move that in turn contributed to a sharp drop in prices, analysts said.
“The rogue oil trade on Tuesday just goes to show how easy it is to squeeze the market under thin trading conditions,” said ETX Capital analyst Manoj Ladwa.
Currencies
The dollar climbed against the euro Friday after eurozone retail figures slipped back into a rut and as fresh worries about the health of the US economy supported the “safe-haven” greenback.
In late afternoon trading here, the European single currency weakened to $1.3987 from $1.3997 in New York late on Thursday.
Against the Japanese currency, the dollar also edged up to 96.00 yen from 95.94 yen on Thursday while the euro rose to 134.44 yen from 134.30 previously.
Trading activity was limited however because US currency markets were closed for a public holiday ahead of the July 4 Independence Day celebrations.
On Thursday, the European Central Bank kept its main interest rate steady at a record low of 1.0 percent as ECB chief Jean-Claude Trichet downplayed the threat of deflation in the eurozone in the face of a fall in prices.
In trading in London on Friday, the euro was changing hands at $1.3987 against $1.3997 late on Thursday, 134.44 yen (134.30), 0.8573 pounds (0.8538) and 1.5208 Swiss francs (1.5182).
The dollar stood at 96.00 yen (95.94) and 1.0860 Swiss francs (1.0844).
The pound was at $1.6336 (1.6390).
Gold
On the London Bullion Market, the price of gold rose to $932.50 an ounce at the fixing from $929.50 an ounce late on Thursday.
