Europe Stocks Dip as German Output Disappoints

By Dow Jones Business News, 
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German Data Weighs on European Stocks


European stock markets edged lower Monday after weaker-than-expected German industrial data encouraged investors to take profit on last week's gains.

Having advanced 1.7% during the previous week, the Stoxx Europe 600 was trading 0.3% lower midmorning, while the U.K'sFTSE 100 lost 0.1% and France's CAC-40 fell 0.4%. Germany's DAX waned 0.2%, after data showed that industrial production in the country declined in May at the sharpest rate since April 2012, weighed by a fall in both manufacturing and construction output.

That led Barclays economists to trim their outlook for second quarter German gross domestic product data to a quarter- on-quarter increase of just 0.1% from a rise of 0.4% previously.

"In light of these weak monthly figures, it is likely that industrial production has declined markedly in the second quarter overall," economist Thomas Harjes wrote in a note.

Lee Hardman, a currency economist at Bank of Tokyo-Mitsubishi UFJ, meanwhile, wrote in a note that this was a further signal that Europe's economic recovery remains "relatively weak and fragile", which is unlikely to prompt investors to reassess the European Central Bank's currently dovish policy stance.

Last week, the ECB council kept its main lending rate at 0.15% and maintained a -0.1% rate on bank funds deposited with the central bank.

Rates will stay at current levels for "an extended period," President Mario Draghi said during a news conference. Even though he didn't specify a time frame, many analysts now expect the period to last at least through 2016, given the ECB's inflation forecasts.

Currency markets were subdued Monday, with the euro unchanged against the U.S. dollar, at 1.3596. Late last week, the dollar gained against a whole basket of currencies, after nonfarm employment advanced at a rate of 288,000 in June, clearly beating expectations.

The U.S. unemployment rate, meanwhile, fell to 6.1% in June, the lowest level since September 2008, leading many to reassess and bring forward their expectations for a first rate increase by the Federal Reserve.

Goldman Sachs, for example, has moved its forecast for a rise forward, for the first time since the global financial crisis. The bank now expects to see a rate increase as early as the third quarter of 2015, from a previous predictions in the first quarter of 2016.

Jan Hatzius, an economist at Goldman Sachs, said Monday that their decision came "in response to the cumulative changes in the job market, inflation, and financial conditions over the past few months".

On Wednesday, the central bank is due to publish minutes of its rate-setting Federal Open Market Committee, which could shed more light on the timetable for potential action.

Back in European equity markets, Dutch postal company PostNL NV was the largest gainer on the pan-European index Monday, with shares adding more than 15% after the company raised its full-year guidance following a strong mail performance in the Netherlands.

One of the biggest losers was German broadcaster Sky Deutschland, after Japanese bank Nomura cut its recommendation on the group to neutral from buy and trimmed its target price to EUR7 from EUR8.50 per share.

Nomura also lowered its earnings and free cash flow forecasts for the group citing higher costs which the company will have to stomach to hit subscriber growth targets.

In the U.S., the S&P 500 index is indicated opening 0.2% lower. Futures, however, don't necessarily reflect changes after the opening bell.

In commodities markets, gold dropped 0.4% to $1,315.30 an ounce, while Brent crude oil edged 0.1% lower to 10.50 a barrel.

Write to Josie Cox at josie.cox@wsj.com

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This article appears in: Energy , International

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