London: European and Asian stock markets ground lower on Thursday, worries over banks and corporate results again darkening the mood despite a surprisingly upbeat survey of Germany’s manufacturing and service sectors.
US stocks were on course to open a touch higher/s, with a handful of data releases after Wall Street opens likely to attract the most attention.
But after a month when stock markets have seen their biggest sell-off in two years, the run-in to Sunday’s results of stress tests on European banks looks set to be a nervy ride.
Concerns the Eurozone is on the verge of an extended era of deflation and extremely low growth that would spell more problems with its mountain of government debt were one big reason for a stock market sell-off at the start of October.
The latest signs from European companies were weak. French tyre maker Michelin and Unilever cited poor demand from emerging markets in downbeat quarterly reports while shares in Britain’s biggest grocer Tesco TSCO. L and French advertising group Publicis also sank.
European stocks overall fell half a per cent.
“I think there still is going to be earnings growth, but there is some evidence that international operations are weak,” said Jasper Lawler, a market analyst at CMC Markets in London.
“Euro zone economies still aren’t convincingly strong, and emerging markets aren’t providing much respite either. It’s good news that Germany has pulled back in manufacturing in October ...
but the issues in the Eurozone are not exactly resolved after one good month in Germany.” The first estimate of the monthly PMI survey of sentiment among company purchasing managers showed both manufacturing and service activity in Europe’s biggest economy growing robustly.
That also propped up the overall Eurozone numbers, helping the euro to eke out a minimal gain against the dollar on the day. Oil prices were also a quarter of a percentage point higher on the day.
CHINA IN MIND Asian markets had drifted lower overnight, unimpressed by a similar survey out of China, which was marginally above forecast but still showed the world’s second largest economy performing sluggishly at the start of the fourth quarter.
Analysts say the beginnings of a new round of action from the European Central Bank this week has helped ease the mood, but many also say it would take outright and aggressive purchases of government bonds of the sort employed by the US
Federal Reserve to revive growth in the Eurozone.
The long-awaited results of the bank stress tests on Sunday offer hope of a watershed of some kind for European banks, although the run-in, filled with a handful of reports that some lenders will fail, has added to market nerves this week.
“I know it’s crazy but I felt physically better when I knew the ECB had started actually buying covered bonds on Monday,” said David Stubbs, a global strategist at J.P. Morgan in London.
“In a few months there is going to be so much more clarity in the financial sector in Europe. And if the banks are healthier then you have a fighting chance of having a good year.”
