By Dow Jones Business News,
July 07, 2014, 12:57:00 PM EDT
By Josie Cox and Tommy Stubbington
European stocks fell Monday after weaker-than-expected German industrial data encouraged investors to take profit
on last week's gains.
The Stoxx Europe 600 index shed 0.9%, following a 1.7% gain last week.
Markets extended declines after U.S. stocks pulled back from last week's record highs at the open.
Germany's DAX closed 1.0% lower 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, 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 little-changed against the U.S. dollar, at $1.3604. Late last
week, the dollar gained against a whole basket of currencies, after nonfarm employment advanced at a rate of 288,000 in
June, comfortably 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 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 commodities markets, gold dropped 0.4% to $1,315.30 an ounce, while Brent crude oil fell 0.4% to $110.23 a
Write to Josie Cox at firstname.lastname@example.org and Tommy Stubbington at email@example.com
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