European shares edge lower

Published Jul 7, 2014

Share

Edinburgh - European shares fell on Monday after weak data out of Germany took the wind out of a rally that saw a top index post its best week in over three months.

German industrial output fell 1.8 percent on the month in May, its biggest drop in more than 2 years, confounding expectations of unchanged industrial output in Europe's powerhouse.

“It's just more evidence that overall economic growth has slowed down in the second quarter from the strong first quarter,” Ioan Smith, director at KCG, said.

The pan-European FTSEurofirst 300 rose 1.7 percent last week, its biggest rise in more than three months, boosted by robust growth in US employment and further signs of support from the European Central Bank.

The gains saw the index rebound towards 6-1/2 year highs and retrace the losses suffered in the previous week, when it had snapped a 10-week winning streak.

However, appetite for European equities has been hindered by the relative weakness of the region's economy, in contrast to the United States, where stocks are at record highs.

Despite the weak data, the German DAX managed to outperform the likes of France's CAC, the Italian FTSE MIB and Spain's IBEX, which all fell 0.2 percent.

The DAX, which is a total returns index and includes dividends, is up 4.8 percent so far this year, compared to gains on the IBEX and FTSE MIB of over 11 percent.

“It rings alarm bells across Europe that the recovery is not a straight line upwards,” James Butterfill, global equity strategist at Coutts, said.

“It's understandable that you would see other, more peripheral, European markets underperform on a data point like this, because in Germany, a lot of the bad news is already priced in.”

The pan-European FTSEurofirst 300 was down 0.1 percent to 1,392.88, while the euro zone blue chip Euro STOXX 50 fell 0.2 percent.

Hindering the CAC, French pharmaceutical heavyweight Sanofi fell 0.5 percent warned that currency effects would impact earnings, shaving over 2 points off the index.

Oil firm Total also weighed, dropping 0.6 percent after it said a weak refining performance in the second quarter would impact margins.

Mergers and acquisition activity supported the market, with Mediaset up 2.1 percent after it agreed to sell an 11 percent stake in its pay-TV division to Telefonica.

Scandinavian telecoms received a boost after Sweden's Tele2 sold its Norwegian mobile telecoms operation to rival TeliaSonera for 5.1 billion Swedish crowns ($744 million).

Tele2 rose 2.9 percent and TeliaSonera gained 2 percent, while Norwegian peer Telenor was up 2.6 percent. - Reuters

Related Topics: