European stocks fell for the first week since June as Greece’s prime minister asked the leaders of Germany and France for a two-year reprieve from cutting government spending and Japan’s trade deficit widened.
The STOXX Europe 600 Index dropped 1.8 percent to 268 this past week, snapping its longest winning streak since 2006. Still, the benchmark measure has advanced 15 percent from this year’s low on June 4 after a summit of euro-area policymakers agreed to ease repayment terms for Spanish banks and European Central Bank (ECB) President Mario Draghi pledged to do whatever it takes to preserve the euro.
“The recent equity market weakness is a product of profit-taking and the expectation that growth could be weak, but inflation will be maintained by stimulus moving forward,” said Daniel Weston, a portfolio adviser at Schroeder Equities GmbH in Munich. “Japan’s trade numbers highlighted slowing global growth, and comments from Europe and the US have leaned towards further accommodative policy.”
Greece must implement reforms if it wants further international loans under the terms of its second bailout from the EU, according to German Chancellor Angela Merkel. Speaking at a joint press conference with Greek Prime Minister Antonis Samaras in Berlin on Friday, she said that the leaders of the 17-nation single currency would wait for a report from the troika due next month before making their decision. Samaras was to meet with French President Francois Hollande in Paris yesterday.
Draghi may wait until Germany’s Constitutional Court rules on the legality of the euro-area’s permanent bailout fund before announcing the details of his planned government bond-purchase program, two central bank officials said on Friday.
Stocks fell after Germany’s Bundesbank said on Monday Aug. 20 that the ECB’s proposal to buy bonds entailed “significant stability risks.”
The new program could be “unlimited” and decisions that involve greater sharing of solvency risks should be taken by governments or parliaments, not by central banks, it said.
Japan had a trade deficit of ￥517.4 billion (US$6.6 billion) last month, the country’s finance ministry reported on Wednesday. That compared with a ￥60.3 billion surplus in June and a ￥270 billion forecast deficit in a Bloomberg News survey of 28 economists.
National benchmark indices fell in all of the 18 Western European markets except Greece this week. The UK’s FTSE 100 slipped 1.3 percent, while Germany’s DAX retreated 1 percent. France’s CAC 40 dropped 1.6 percent.
An index of mining stocks was among the worst-performing industry groups on the STOXX 600 this week. Rio Tinto lost 4.2 percent and ArcelorMittal declined 5.8 percent.