Sun, Jul 04, 2004 - Page 10 News List

European markets sit tight for US Independence Day

AP , LONDON

European stocks were lower Friday as investors were spooked by a worse-than-expected June US labor market report.

The widely watched June US non-farm payrolls report showed just 112,000 jobs were created on the month compared with expectations of 250,000. The weak data came in the wake of Wednesday's US quarter point interest rate hike and prompted worries about the strength of recovery in Europe's largest export market.

Investors were also reluctant to take new positions with US markets set to remain shut Monday for a public holiday.

At 4pm in London, the Dow Jones Stoxx 600 Index, which tracks Europe's 600 largest listed companies, was down 0.6 percent at 238.60. The Dow Jones Euro Stoxx Index, which tracks companies in countries that joined the common currency, was 0.7 percent lower at 227.22.

"I don't think this is a diversion away from a jobs generating recovery," said David Brown, chief European economist at Bear Stearns, noting that the US economy is still on an expansion path.

He added that the global interest rate cycle is still on an upwards trajectory but the Fed is now likely to hike rates at its August meeting by 25 basis points.

"Fears of a more aggressive 50 basis point hike," look unfounded, he said.

SECOND QUARTER FOCUS

David Buik, at UK spreadbettor Cantor Index said that worries about inflation have been pushed back for the meantime. He added that the next focus for equities is likely to be the second-quarter earnings season.

"Currently the outlook is for an improvement on the previous quarter results," he said, noting that stronger corporate earnings are likely to inject life back into equities.

The retail sector ended the week on a sour note after being hit by two profit warnings in as many days. Grocer William Morrison Supermarkets said it will miss its annual profit goals substantially because the Safeway acquisition has brought more problems than anticipated. Its shares fell 11.2 percent to £2.00 leading decliners in London.

UK rival J Sainsbury bounced back 1.8 percent to £2.735. The stock had led losers in London Thursday after it lowered its profit outlook for the second time in four months.

Financial stocks were also in focus. UK insurance company Friends Provident strengthened its position in the European asset management sector by merging its ISIS Asset Management unit with Eureko NV's F+C operations.

The deal, which will result in Friends Provident issuing 172.4 million new shares, saw the stock slip 4.4 percent to £1.3925.

Legal & General escaped the gloom gaining 4.2 percent to £9.85 leading gainers in London.

It said that in the second quarter of the year it has seen a marked increase in UK new business growth which it maintains indicates a return of consumer confidence in financial products.

German auto makers continued to feel the effects of weaker car sales after US counterparts said Thursday that their June sales were down 2 percent. DaimlerChrysler slipped 1.9 percent to US$45.1, leading decliners in Frankfurt. Volkswagen fell 1.7 percent to US$40.81.

Shares in UK energy services firm John Wood Group lost 11.3 percent to £1.135 after the company said its profits will be hit by continued delays in key deepwater oil projects and a poor US power market.

DEFENSIVE SECTORS

Defensive sectors were back in favor with drugmakers lending support across the region. In London, AstraZeneca gained 1.1 percent to £24.82 with GlaxoSmihKline up 1.1 percent at £11.15.

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