Widespread Losses in European Markets on Weak Economic Data

Barry Randall
21 Feb, 2013
New York City

Euro zone markets fell sharply after the latest data manufacturing and service sector index showed a shrinking growth rate. Markets in Paris, London and Frankfurt dropped more than 1.7%. Markets in Milan declined 3% ahead of general election this weekend.

[R]4:30 PM Frankfurt – Euro zone markets fell sharply after the latest data manufacturing and service sector index showed a shrinking growth rate. Markets in Paris, London and Frankfurt dropped more than 1.7%. Markets in Milan declined 3% ahead of general election this weekend.[/R]

Financial markets across Europe declined after cautious economic news around the globe.

Euro zone service and manufacturing index shrank to 47.3 in February from 48.6 in January. A reading below 50 indicates a contraction.

The decline in growth rate suggested that economy in the euro zone may shrink in the first quarter to 0.5% as growth rates diverged between France and Germany.

German businesses showed a slight growth but service sector showed another month of decline leading to the worst period since the financial crisis in 2009.

In addition, investors worried that the U.S. Fed may remove economic stimulus as policy makers worry about the rising inflation and the effectiveness of additional bond buying. Rate setting committee is worried that the Fed support is only creating asset price bubble which will eventually rekindle inflation.

Moreover, China may be forced to withdraw more lending after the central bank carried out its first liquidity draining from the financial system as prices continue to rise in the property market.

In London trading, FTSE 100 index dropped 1.7% or 105.7 to 6,290 and in Frankfurt, the DAX index declined 1.8% or 142.3 to 7,587. In Paris, CAC 40 index slumped 1.8% or 69.1 to 3,641.

Markets in Milan dropped 3% on the worries that the weekend election may remain inconclusive. Former Prime Minister Silvio Berlusconi has gained momentum in a three-way election.

Italian 10-year bond yield increased 4 basis points to 4.47%.

Commodities and energy futures declined after the latest read on the economic index suggested a decline in activities.

Stocks in Review

AXA SA declined 3% to €13.29 after net income declined to €4.15 billion in 2012 from €4.19 billion in 2011.

Allianz SE slipped 1.1% to €103.10 after Germany based financial services provider reported revenue for the year ending in December grew 3% to €106.4 billion compared to €103.6 billion in the same period of last year.

Net income in the fiscal year doubled to €5.2 billion from €2.5 billion from a year ago and diluted earnings per share surged to €11.34 compared to €5.48 from a year ago period.

For the fourth quarter, revenue rose 4% to €25.9 billion compared to €25 billion in the same period of last year. Net income in the quarter surged 148% to €1.22 billion from €492 million from a year ago and diluted earnings per share surged to €2.66 compared to €1.06 from a year ago period.

The board is scheduled to propose a dividend of €4.50 per share.

The bank expected operating profit outlook for 2013 of €9.2 billion with a range of €500 million.

BAE Systems plc climbed 4.9% to 348.50 pence after the UK based aerospace and defense products maker initiating a three-year share repurchase program of up to £1 billion.

For the year ending in December sales dropped 7% to £17.83 billion from £19.15 billion a year earlier.

The company provided outlook for the first quarter of 2013 subject to uncertainties relating to US defense budget, electronic systems sales expected to be at a similar level of 2012 with margins expected to be slightly lower within a range of 12% to 14%.

Deutsche Lufthansa AG fell 0.6% to €14.90 after Germany based airline said revenue for the year ending in December increased 5% to €30.1 billion.

The aviation company added operating profit generated to €524 million. Group net profit in the 2012 jumped from minus €13 million in 2011 to €990 million.

Safran SA declined 4% to €33.55 after Chief Executive Jean-Paul Herteman said the company has initiated exploratory merger talks with Avio.

Schneider Electric SA increased 3% to €57 after electric equipment maker said 2012 net income increased 3% to €1.84 billon and revenues are expected to increase in 2013.

Swiss Re increased 2.3% to Sfr75.50 after the reinsurance company said fourth quarter net income increased to $795 million and declared a special dividend of Sfr4 in addition to regular dividend of Sfr3.50.