ECB Rate Cut Unlikely to Reverse Economic Trends in Europe

Nigel Thomas
02 May, 2013
New York City

European markets pared losses but closed mixed after the European Central Bank lowered rate to 50 basis points. The widely expected rate cut is largely symbolic as companies in peripheral zone are likely to not see any benefits of the rate cut.

[R]3:00 PM Frankfurt – European markets pared losses but closed mixed after the European Central Bank lowered rate to 50 basis points. The widely expected rate cut is largely symbolic as companies in peripheral zone are likely to not see any benefits of the rate cut.[/R]

Market indexes in Europe pared gains after a rate cut and a mixed batch of earnings.

European Central Bank lowered its reference rate to 0.5%, from the already record low rate of 0.75% and left its deposit rate for banks at zero.

The rate cut was the first since July 2012 and fourth for the newly appointed President Mario Draghi since November 2011.

The rate cut was widely expected after the latest series of weak economic data in the last three weeks and measured inflation dipped to 1.2% in April.

Unemployment rate rose to a record high since the record keeping began in 1995 and confidence among businesses and consumers have been on the decline.

However, rate cut is unlikely to impact the persistent weakness in the euro zone with the companies in Italy, Portugal, Greece and France struggling to revive sales and find new customers as government implements austerity measures.

In London trading, FTSE 100 index fell 0.2% or 12.1 to 6,439 and in Frankfurt the DAX index gained 0.3% or 26 to 7,940.

In Paris, CAC 40 index slipped 0.3% or 11.4 to 3,845.

Stocks in Review

Glencore International plc soared 5.1% to 330.35 pence after the Switzerland based metals and mining company said its merger with Xstrata is complete and effective as of today.

Sanofi SA France based healthcare company reported net sales in the first-quarter ending in March declined 5.3% to €8.06 billion. Net income in the quarter tumbled 44.7% to €1 billion compared to €1.81 billion and earnings per share dropped to €0.76 from €1.37.

Sanofi also cited higher competition from generic drug makers as patents expire for some of its medicines.

Sanofi added sales in emerging markets jumped 6.5% to €2.72 billion accounting for 33.7% of total group sales and sales in BRIC countries climbed 10.7%.

Statoil declined 4% to NKK 135.20 after the Norwegian oil and gas company reported less than expected sales and earnings on lower energy production.