Fundamentals

European Equities End Winning Streak on Weak Data, Debt Concerns

Europe Session Key Developments

•    Concerns Linger Over Debt Problems in Several European Nations
•    PMI Services Data Mixed, Euro-Zone Retail Sales Fall Short of Expectations
•    Commodities Generally Lower, Greenback Gains Against Euro Currencies

European stocks fell today, putting an end to their longest winning streak in three weeks.  Weak Euro-Zone retail sales disappointed investors and concerns lingered over debt problems in several European nations.  Stocks appeared headed for a fourth day of gains after the first hour of trading, but fell quickly after the EU’s statistics office announced that retail sales in the region were unchanged in December, amid expectations for a 0.4 percent gain.  Further downside pressure on stocks came from renewed concerns over debt problems in Greece, Portugal, and Spain.  Greek Prime Minister George Papandreou won European Commission backing for his plan to cut the Greek budget deficit by extending a wage freeze on public workers and raising the fuel-tax.  The plan would hope to cut the current deficit of 12.7 percent of GDP to the EU’s acceptable measure of 3 percent of GDP by 2012.  Investors remain unsure, however, of Greece’s ability to correct its deficit without help from the European Union or International Monetary Fund.  Portuguese debt levels have also come under scrutiny from investors after Portugal’s central bank Governor Vitor Constancio said yesterday that the country would require “difficult” measures to cut its deficit.  During today’s session, the yield premium demanded to hold Portuguese and Spanish 10-year bonds jumped 2 basis points over the equivalent 10-year German Bund.  Credit default swaps on Portugal rose 29 basis points to a record 196, according to CMA DataVision in London.  On the commodities front, energy prices were relatively flat with crude oil holding above the $77 a barrel level.  Gold futures fell approximately 0.3 percent, while silver futures dropped over 1.6 percent during trading.  Investors showed a return to risk aversion and parked their money in U.S. dollars, driving the greenback higher against the Euro and British Pound.  Looking ahead to tomorrow, all eyes will be on interest rate announcements from the Bank of England and European Central Bank.  The central banks are expected to maintain their current rates of 0.50 percent and 1.00 percent respectively.

FTSE 100                      5253.15                   -30.16                    -0.57%
British stocks closed lower for the first time since Thursday as Health Care and Basic Materials shares fell over 1.6 percent collectively.  Health shares were led lower by AstraZeneca, on news that the drug producer faces as many as 26,000 lawsuits over its antipsychotic drug Seroquel.  The company announced plans last week to cut over 10,000 jobs over next four years.  Basic materials declined on falling commodities prices, as major mining companies Rio Tinto, BHP Billiton, and Anglo American dropped at least 1 percent each during the session.

CAC 40                           3793.47                   -18.66                    -0.49%
Trading in Paris led to a slight decline as Financial companies dropped over 1.8 percent.  Credit Agricole, the largest French bank by branches, fell over 3 percent during today’s trading on investor concern over its 16.9 billion euro deficit.  Investment banking giants BNP Paribas and Societe Generale dropped over 2 percent each.  The worst performing stocks on the CAC included video-game maker GameLoft, which fell over 4 percent on a weak fourth quarter sales outlook, and software company Coheris, which dropped 5 percent.

DAX                                 5672.09                    -37.57                  -0.66%
The German Index dropped over 0.6 percent today on poor performance from the Financials, Utilities, and Consumer Services sectors.  Deutsche Boerse was the worst performing stock of Financials, declining over 3 percent after Morgan Stanley cut the stock from “overweight” to “equal-weight.”  Germany’s largest bank, Deutsche Bank, fell 1.7 percent.  RWE led the decline in utilities shares, falling 1.4 percent despite unveiling a new biomass plant under construction in Scotland that would reduce carbon emissions.  European energy utility companies have been hurt by weak demand due to poor economic conditions in the past two years.

IBEX 35                       10888.40                   -252.50                 -2.27%
For a second consecutive day, trading in Spain led to the worst performance of major European indices as debt problems in the country have resurfaced as a major concern for the EU.  Financial shares were the worst performing sector, dropping over 3 percent as the country’s largest banks, Banco Santador and BBVA, fell over 3.8 percent each.  Also lower on the index were Oil & Gas stocks, which pulled back after strong gains to open the week on rising energy costs.  Energy leader Gamesa fell over 3 percent, a day after Wind Energy America completed the commissioning of two Gamesa wind turbines in Iowa.

FTSE MIB                     22169.25                   -244.49                 -1.09%
The Italian benchmark index fell over 1 percent today after the Italian PMI Services Index fell to 50.9, much worse than the 52.9 reading expected.  The most active stocks traded in Milan today included financial firm Banco Popolare, which fell over 2 percent on a trimmed price estimate from Intermonte Sim, and appliance maker Indesit, which fell 5 percent after Bank of America Merrill Lynch discussed possible downgrades in the industry.  Telecom Italia fell over 3 percent on mixed opinions over a takeover of the phone company by Spain’s Telefonica.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com