European Markets Gain In May, Volkswagen Net Plunges 20%

Lucy Stoeva
31 May, 2016
New York City

European stock market indexes closed lower and latest economic data showed the euro zone is still in deflation. However, most major European markets gained in May. Volkswagen reported a 20% drop in profits.

[R]4:00 PM Frankfurt, Germany – European stock market indexes closed lower and latest economic data showed the euro zone is still in deflation. However, most major European markets gained in May. Volkswagen reported a 20% drop in profits.[/R]

European stock market indexes closed lower on Tuesday as latest economic data showed the euro zone is still in deflation, while Volkswagen reported a hefty drop in profits.

However, most major markets ended May on a positive note, boosted by the lower euro supporting exporters from the region.

In May, the euro lost almost 3% against the dollar to $1.1136 on growing expectations for an upcoming rate hike in the U.S.

The flash consumer price index, a measure of inflation, declined 0.1% in May after falling at a rate of 0.2% in April, according to Eurostat, the statistics agency of the EU.

Core inflation, which excludes energy, food and alcohol, rose to 0.8% from 0.7%, Eurostat said.

The data, which met expectations set by several economists, is unlikely to prompt further changes in the monetary policy of the European Central Bank. The bank has already established a large asset purchase program and maintains negative deposit rates to stimulate the economy.

Unemployment in the euro zone was flat at 10.2% in April, the lowest rate since August 2011.

Volkswagen plunged 2.6% after the auto maker reported a 20% drop in first-quarter profit compared to the same period a year ago.

Rivals Peugeot and Renault eased down 1%, while Daimler lost 0.3%.

Energy stocks traded lower, despite an increase in oil prices.

Brent crude oil futures advanced 0.4% to $49.96 per barrel, while WTI crude oil futures jumped 1.3% to $49.97.

Among energy stocks, Tullow Oil lost 3.2%, Statoil fell 1.8%, and Royal Dutch Shell shed 1.2%.

In London, the FTSE 100 index fell 40, or 0.64%, to 6,230.79, while in Frankfurt, the DAX index erased 70.49, or 0.68%, to 10,262.74.

In Paris, the CAC 40 index dropped 23.78, or 0.53%, to 4,505.62.

For the month, the German market recorded a gain of 2.3%, boosted by the lower euro and the better prospects for the exporters.

The French CAC 40 index advanced 1.7% in May.

The U.K. market index underperformed its European counterparts in May due to concerns about the pending June referendum on the Brexit. The FTSE 100 index closed 0.2% lower for the month.

Aryzta AG tumbled 4.7% to 39.56 Swiss francs after the frozen-meal company said quarterly revenue fell 2.4% due to restructuring costs.

The company said one-time cash costs in 2016 will be less than the €88 million costs recorded in 2015.

Aryzta also said that the company is negotiating operational changes that may affect 2% of its 18,800 employees.

IG Group Holdings Plc inched up 0.3% to 799.5 pence after the U.K. financial trading and betting company said it expects full-year earnings to be slightly ahead of market expectations.

Volkswagen AG fell 2.6% to €134.35 after the auto maker reported a 20% drop in first-quarter profit due to poor performance in China and losses related to the diesel-emissions scandal.

Net profit in the quarter ending on March 31 fell 20% to €2.3 billion from the same quarter a year earlier. The decline was steeper than expected.

Automobile unit sales fell 1.2% to 2.6 million vehicles, while sales revenue dropped 3.4% to €51 billion.

Nevertheless, the quarterly profit represents an improvement over the losses recorded for full-year 2015.