Fundamentals

Commodity, Financial Stocks Lead European Equity Decline

Europe Session Key Developments

•    German Business Confidence Drops For the First Time in Eleven Months
•    More Quantitative Easing May Be in Store for the United Kingdom
•    Commodities Drop as Dollar Gains Against Pound and Euro

European equities fell for the second day in a row as confidence among businesses and consumers declined worldwide.  The Dow Jones Stoxx 600 Index fell 1.2 percent and the national benchmark indices in 17 of the 18 Western European markets declined.  The three largest economies in the European Monetary Union all reported unfavorable data.  France saw its consumer spending drop more than expected in January after the government trimmed a program to encourage new car sales.  Spending fell 2.7 percent while economists were expecting only a 1.1 percent decline.  In Italy, consumer confidence unexpectedly declined for a second month in February as job losses fueled concern about the economic outlook.  Unemployment in Italy currently stands at 8.3 percent.  But most significant on today’s economic docket was the Ifo institute’s report on German business confidence, which unexpectedly fell for the first time in 11 months in February.  The median forecast of economists was for a gain from 95.8 in January to 96.1 while the report actually showed a drop to 95.2.  The coldest winter in 14 years is believed to have played a role as below-average temperatures and snow have brought construction sites to a standstill and prompted companies to curtail hiring, hurting household spending.  Stateside, consumer confidence also declined more than expected in February, dropping to 46 from 56.5 in January.

In England today, Bank of England Governor Mervyn King hinted at the possibility of more quantitative easing today in his testimony to Parliament’s Treasury Committee today.  “Monetary policy can either be more expansionary or more contractionary as the situation demands,” he said.  Sterling was down 0.5 percent against the greenback on the comments as they reduce the outlook for U.K. interest rates.  In general, the dollar gained 0.6 percent against the currencies of its largest trading partners and will probably close at a new 8-month high.  The single currency dropped slightly more, giving up 0.7 percent, as risk trends continue to dominate direction.  But commodity currencies were the worst performers today as the CRB Commodity Index gave up 1.7 percent today.  Energy and precious metals led the decline in commodities with the groups giving up 2.2 percent and 1.7 percent respectively.

FTSE 100                         5315.09                     -36.98                      -0.69%
British stocks fell today amid lower commodity prices and lower U.S. consumer confidence.  Overall, three out of four issues on the FTSE 100 declined while all commodity producers fell in the session.  Basic Materials stocks dropped 2.4 percent as a sector and Energy stocks gave up 1.25 percent.  Xstrata, the largest exporter of coal used for power, dropped 3.4 percent, the second biggest drop on the index.  British Petroleum contributed the most to today’s decline as the company’s shares fell 1.4 percent.

CAC 40                            3707.06                     -49.64                     -1.32%
All ten of the industry sectors on the CAC 40 declined today led by financial stocks.  The sector was down 2.2 percent as Commerzbank, Germany’s second-biggest bank, posted a wider-than-estimated-loss.  Credit Agricole led the decline in banks; its shares lost 3.2 percent to 10.47 euros.  BNP Paribas, France’s biggest bank by assets, fell by 2.5 percent to 52.53 euros.  The lone issue to advance on the CAC was EADS, the parent company of Airbus, which gained 1.18 percent to 15.05 euros.  The company reached a deal with European governments worth 3.5 billion euros today over a rescue package to save the A400M military transporter.

DAX                                 5604.07                       -84.37                    -1.48%
German stocks dropped for the second straight day as only two of the thirty issues gained on the DAX benchmark index.  Health care stocks fell the most in today’s session, dragged lower by Merck, which dropped 10 percent.  The German maker of chemicals and drugs missed profit estimates and said it was reducing its 2009 dividend by 33 percent.  Commerzbank was right behind the health care company dropping 6.5 percent to post its biggest loss since October.  Germany’s second-biggest bank posted a wider-than-estimated-loss today.

IBEX 35                          10312.90                     -257.60                  -2.44%
The IBEX 35 was the worst performer among the benchmark indices of the five biggest European economies.  Only four of the thirty-five issues advanced and only one industry sector gained as negative economic data hurt the performance of stocks across Europe.  Financial stocks were the worst performers, dropping 3.6 percent as a group.  Banco Santander declined the most among Spanish banks and contributed the most to the IBEX’s drop today.  The company’s shares were down 4.1 percent.

FTSE MIB                     21224.07                    -480.71                    -2.21%
Italy’s FTSE MIB fell 2.2 percent as Europe’s fourth largest economy saw consumer confidence drop unexpectedly in February to 107.7 from January’s revised lower reading of 111.6.  The Italian National Statistics Institute also reported that EU Harmonized consumer prices were 1.4 percent higher on an annual basis, which was slightly higher than economists’ forecast of 1.3 percent.  Two of the most active stocks on the Italian equity market today were commodity plays.  Saipem, Europe’s largest oilfield-services provider, dropped 1.6 percent and Tenaris, the world’s largest maker of seamless pipes used to extract oil and gas, fell 3.3 percent.  Oil and natural gas dropped over 1.5 percent and 2.5 percent respectively.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com