European Stocks, Peripheral Bond Markets Calm
07/10/2012| 03:05am US/Eastern
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--Stocks tread water in cautious trading
--Chinese trade data weak, but Alcoa results better than expected
--Tech stocks lend support following ASML deal with Intel
--No surprises from Eurogroup meeting
--European finance ministers meeting in focus later
European stocks were treading water Tuesday as a strong showing in the technology sector was offset by more signs of a slowdown in China and an underwhelming Eurogroup meeting, while peripheral bond yields drifted lower.
"Despite a strong start to the U.S. earnings season, the acute impact of a stuttering China and ongoing euro-zone concerns continue to keep investors at bay," said Mike McCudden, head of derivatives at Interactive Investor. "The distinct lack of urgency shown by euro-zone ministers in getting their house in order is taking its toll on the markets once again and investors are feeling they have seen enough of the recent rally and are now choosing to sit on their hands or take profits where they can."
At 0755 GMT, the benchmark Stoxx 600 index was flat at 253.52. The U.K.'s FTSE 100 was flat at 5629.45, Germany's DAX was down 0.3% at 6367.42 and France's CAC-40 was flat at 3157.89. The performance in peripheral markets was slightly weaker, with Spain's IBEX-35 index off 0.6% at 6651.10 and Italy's FTSE Mib down 0.5% at 13,740.64.
In peripheral bond markets, it was a much calmer picture than the previous day, with yields on Spanish and Italian bonds easing back from the highs reached Monday. The 10-year Spanish government bond yield was down six basis points at 6.96%, while the corresponding Italian yield was down seven basis points at 6.04%.
More bad news from China was keeping investors on edge. The trade surplus for June came in higher than expected, at $31.7 billion, but this was primarily due to weak import growth--a sign that domestic demand is slowing. The trade data comes a day after figures showed Chinese inflation eased more than expected in June, and don't bode well for Friday's second-quarter gross domestic product figure.
Meanwhile, investors were left feeling underwhelmed by Monday's Eurogroup meeting. Euro-zone finance ministers reached an agreement on the aid package for Spain's banks and decided to give the country an extra year to meet its deficit targets, but questions remain about secondary-market intervention. The news about Spain was expected, however, and Spanish bank stocks showed no real reaction. Banco Popular Espanol was down 0.9%, Banco Santander was down 0.3% and Banco Bilbao Vizcaya Argentaria was trading flat. Overall, the Stoxx Europe 600 banks index was down 0.1%, flitting between small gains and losses.
The focus will shift to Germany next, where the ratification of the European Stability Mechanism and fiscal pact are due to be discussed in the Constitutional Court. Brown Brothers Harriman said the court is expected to rule Tuesday on the request for a temporary injunction against the ESM and the fiscal pact on grounds that it transfers an unconstitutional amount of power to European institutions. "Granting a temporary injunction would itself raise uncertainty and in the current environment such uncertainty would likely be seen by investors as negative for risk-taking in general and another weight on the euro," it said.
In terms of stocks, the technology sector got a boost from Dutch semiconductor-equipment maker ASML, which surged 8.9% after Intel agreed to buy a stake in the company. Intel will spend up to $3.1 billion for a stake of as much as 15% and will provide ASML with about $1 billion in research and development funding. The news lifted the Stoxx Europe 600 technology index 1.1%.
In London, Marks & Spencer rose 1.1% following the release of its first-quarter results. It said group sales fell 0.7%. Singer Capital Markets said the update was as expected, confirming that food sales held up well, but general merchandise was weak. It said the reshuffle of the senior team and the announcement that Kate Bostock will be leaving should help restore some stability at a critical time for M&S, but may take time to bed in.
Also helping to underpin sentiment were Alcoa's second-quarter results, which were released after the close Monday. The bellwether managed to beat reduced expectations, generating revenue of $5.96 billion. Excluding special items, earnings per share came in at $0.06, slightly better than analysts' expectations for $0.05 a share.
European finance ministers will gather in Brussels again Tuesday, for the Ecofin meeting, during which the Eurogroup's conclusions will be discussed and the leeway on Spain's deficit targets will likely be formalized.
In foreign exchanges, the euro was weaker against the dollar. At 0755 GMT, the single currency was at $1.2291 from $1.2312 late Monday in New York. The dollar was at Y79.29 from Y79.56.
August Nymex crude oil futures were down $1.04 at $84.95 per barrel and the August Brent oil contract was down $1.46 at $98.86. Spot gold was at $1,584.70, down $3.40, while the September bund contract was up seven ticks at 144.06.
Write to Michele Maatouk at michele.maatouk@dowjones.com
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