GLOBAL MARKETS-Europe’s stocks, periphery’s bonds dip as banks fined, QE hopes dim

July 8, 2014

* Stocks lower on reports of German bank fines

* ECB Lautenschlaeger says QE a last resort

* Wall Street set to open lower ahead of earnings

* UK output dips unexpectedly, sterling falls (Updates prices, adds US indicators)

By John Geddie

LONDON, July 8 (Reuters) – Europe’s main stock indices andlower-rated government bonds slipped on Tuesday amid reports ofnew U.S. fines for banks and dimming prospects the EuropeanCentral Bank will launch an asset- purchase programme.

Wall Street was expected to start down 0.1 percent, asinvestors continued to hold off from making big bets going intoa corporate earnings season that kicks off with Alcoa (NYSE: AAnews) aftermarkets close.

European equity indexes fell for a third consecutive dayafter reports that Germany’s largest lenders were negotiating asettlement with U.S. authorities over their dealings withcountries blacklisted by Washington. The talks follow a hugefine for French lender BNP Paribas (Xetra: 887771news) .

“These fines add to an existing uncertainty in the bankingsector,” said Berenberg’s senior economist, Christian Schulz,pointing out that the balance sheets of the region’s banks arecurrently under review by the ECB.

At 0945 GMT, the pan-European FTSEurofirst 300 index was down 0.5 percent at 1,380.33. Germany’s Dax and France’s CAC were also down 0.5 percent,while weaker than expected UK factory output data dragged theFTSE 100 down 0.6 percent.

Shares in German lender Commerzbank (Xetra: CBK100news) fell 4 percentas the New York Times reported it could pay at least $500million in penalties. Its larger competitor Deutsche Bank (NYSE: DB-RInews) saw its shares slip 1.3 percent.

The ECB has made unprecedented policy moves in recent monthsto stimulate bank lending and revive the euro zone economy.

But late on Monday ECB Executive Board member SabineLautenschlaeger showed the strength of opposition in somequarters to a programme of asset purchases, which she saidshould be a last resort.

Many economists say such a programme, known as quantitativeeasing, might not prove as effective as it has in the UnitedStates because Europe relies on traditional forms of banklending more than capital markets. ECB chief Mario Draghi hasalso said that might be the case.

Berenberg’s Schulz said he felt QE should only be used tofight a future sovereign debt crisis stemming from the bloc’sfragile states. It was these lower-rated sovereign bonds thatstruggled on Tuesday, with traders citing Lautenschlaeger’sspeech.

Yields on 10-year Greek, Portuguese, Spanish, Italian andIrish bonds edged up between 1-7 basis points, although theyremain near record lows.

In currency markets, the big mover was sterling, which fellagainst the dollar after an unexpected dip in British factoryand industrial output, although strategists said the data wasunlikely to curb the pound’s strength for long.

“Taken as a whole, the UK data still points at quite aresilient, robust recovery,” said Valentin Marinov, a currencystrategist at Citigroup (NYSE: Cnews) .

The dollar was largely unchanged against a basket of othermajor currencies, just nudging into a sixth straight day ofgains, as markets waited for minutes on Wednesday of the FederalReserve’s last meeting, which will be scoured for hints on whenits policy committee might consider raising interest rates..


Asia was quiet overnight, with the region’s stocks trackingsideways as the earnings season kicked off with disappointingguidance from regional tech heavyweight Samsung.

MSCI (NYSE: MSCInews) ‘s broadest index of Asia-Pacific shares outside Japan was flat, having earlier touched a three-yearhigh of 502.27 during the session.

The U.S. earnings season starts with Alcoa later onTuesday and dozens of major companies are scheduled to reportnext week, including numerous Dow components.

Profits are forecast to grow 6.2 percent for the quarter,according Reuters data, but investors see a chance of a returnto double-digit growth for the first time in nearly three years.

In commodity markets, gold reversed earlier losses, edgingup to $1,323.45 an ounce, having held to a relativelytight $1,305.90 to $1,332.10 range for the past two weeks.

Oil prices extended their recent decline as events in Iraqand Ukraine have so far not led to any serious disruption inflows. Brent LCOc1 dipped 62 cents to $109.62 a barrel and U.S.oil lost 11 cents to $103.42 a barrel. (Editing by Larry King)

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