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Europe Stocks Rise

Published: August 3, 2012 | 7:26 am
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European stocks started slightly higher Friday, following disappointment at the European Central Bank’s inaction Thursday, and investors will now turn their attention to the closely watched U.S. nonfarm payrolls report, which is seen as a key indicator of the health of the world’s largest economy.

Germany’s DAX started up 0.3%; France’s CAC 40 was up 0.4% and the U.K.’s FTSE 100 was up 0.2%.

Meanwhile, the euro will likely attempt to retrace losses, after slumping to a one-week low following the disappointment in the ECB’s monthly address.

ECB President Mario Draghi pledged Thursday to draw up a set of unconventional measures to preserve the euro, but his comments disappointed investors looking for more concrete plans. The central bank left key interest rates unchanged, as expected.

Spanish 10-year bond yields rose back above 7% amid a broad selloff in European assets and Spain’s IBEX 35 index dropped as much as 5%.

Investors had hoped for a big policy move from the central bank after Mr. Draghi said last week the bank would do whatever it takes to safeguard the future of the euro.

“Within a week ‘whatever it takes’ evolved into ‘no need to be specific’; ECB President Draghi may see no inconsistency in his two statements but financial markets expected and wanted firmer action from the ECB’s latest meeting. The danger now is that investors are left in limbo through August,” said Ian Williams, economist at Peel Hunt.

The focus now turns to U.S. nonfarm payrolls data. “With the Federal Reserve’s and ECB’s August meetings now behind us, attention now turns to today’s U.S. payrolls report for July. Another sub-100,000 increase, as we expect, and sentiment will probably take another battering, though it would probably more or less be a lock-in for the unveiling of QE3 [a third round of quantitative easing] at the Fed’s September meeting. A stronger number may raise more questions about what the Fed is likely to do,” said Jeremy Lawson, an economist at BNP Paribas.

Disappointment with the ECB’s latest response to the region’s debt crisis sparked a slide in U.S. stocks Thursday.

The Dow Jones Industrial Average fell 0.7% to 12878.88, its fourth-straight decline. The Standard & Poor’s 500-stock index lost 0.7% to 1365.00. Energy shares led declines in nine of the index’s 10 sectors, as crude-oil prices slid. The Nasdaq Composite Index retreated 0.4% to 2909.77.

Also in focus was Knight Capital Group, KCG -62.82% whose shares plunged 63% after the brokerage said it is pursuing ways to “strengthen its capital base” after glitches in its electronic-trading system caused price swings in about 150 stocks, a misstep the company said will likely cost it $440 million.

The decline added to a 33% slide in Knight’s stock Wednesday, the day the problems occurred. Selling in the two sessions erased three-quarters of the company’s market capitalization.

The global selloff in stocks extended to Asian markets Friday, as investors took flight from riskier assets.

A wave of earnings disappointments from Japanese technology firms added to the general gloom, sending the Tokyo market sharply down as the likes of Sharp and Sony 6758.TO -6.95% plunged to multidecade lows on profit warnings.

In Japan, the Nikkei Stock Average declined 1.1%. A stronger yen also weighed on Tokyo stocks as some investors looked to shelter their investments in the safe-haven Japanese currency.

In Hong Kong, the Hang Seng Index lost 1.0%, while Australia’s S&P ASX 200 fell 1.2% and South Korea’s Kospi was off 1.0%. China’s Shanghai Composite bucked the trend, rising 0.4% after recent sharp falls.

At $1.2180, the euro was slightly below the $1.2181 level in New York late Thursday. The dollar was unchanged against the yen at ¥78.23. Nymex September-delivery crude recovered slightly after hitting a six-session low Thursday. By 0610 GMT it was up $0.50 at $87.63 per barrel, while the September Brent contract was $0.56 higher at $106.45. Spot gold was up $3.60 at $1590.20 per ounce The September bund contract was up 0.06 at 144.94.

wsj

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