Economic indicators quash market optimism

Eurostoxx 50: 2,842.83 (–19.09) Frankfurt DAX: 7,217.43 (–76.21) Paris CAC: 3,964.81 (–42.13): EUROPEAN SHARES ended sharply lower yesterday as risk appetite waned after data showed a slowdown in US manufacturing activity in May and a much lower than expected increase in US private sector employment.

Yesterday’s US economic indicators, combined with figures showing factory growth eased in Europe and Asia in May, raised fresh questions about the pace of the global economic recovery.

The Eurostoxx 50 volatility index, one of Europe’s main barometers of market sentiment, rose as much as 5.5 per cent before paring some gains, suggesting a fall in appetite for equities. Energy shares featured among the top decliners as the economic numbers weighed on the demand outlook for crude.

“Certainly the macroeconomic numbers are casting a shadow over the pace of economic growth going forward,” said Keith Bowman, equity analyst at Hargreaves Lansdown, adding that the data would have the potential to impact corporate earnings expectations.

Investors took shelter in safe-haven government bonds and gold. “This week has seen a raft of worrying economic data releases from the major economic powerhouses, and this has been enough to quash any optimism that might have built up in recent days,” said Angus Campbell, head of sales at Capital Spreads.

Financial companies, which generally gather strength from a rise in economic activity, lost ground. The STOXX Europe 600 banking index fell 1.4 per cent, while KBC was down 6.2 per cent.

Italy’s Banca Monte dei Paschi di Siena fell 7.6 per cent after its main owner, the Foundation Monte Paschi, sold 450 million preference shares.

Some fund managers, however, remained positive about the outlook in the longer term.

“I don’t think this is the beginning of a downturn. With oil prices lower, we will see a bit of rebound. We will not go back to old strengths, but I think that global growth will remain solid,” said Klaus Wiener, chief economist at Generali Investments, which manages €330 billion.

Nokia fell 0.8 per cent. Analysts predicted more gloom for the company and the struggling phone maker was forced to deny talk it would sell its core business to Microsoft. – (Reuters)