European stocks fell this week, as European Central Bank (ECB) President Jean-Claude Trichet’s suggestions of a possible increase in interest rates and concern spurred by unrest in North Africa and the Middle East outweighed a drop in the US unemployment rate.
Banking and automobile shares led the drop.
The benchmark STOXX Europe 600 index declined 0.8 percent to 281.9 this week. The gauge, which fell the most since July last year in the week ended Feb. 25, is still up 2.2 percent this year amid better-than-estimated corporate earnings and indications the global economy is gathering strength.
Louis de Fels, a Paris-based money manager at Raymond James Asset Management International, which oversees US$30 billion worldwide, noted that “the US market is less impacted than Europe by the geopolitical problems in Africa and the Middle East,” while “what went right this week was the good figures from unemployment in the US, though in the near future QE2 [second round of quantitative easing] could be discussed should the macro figures be too good in the US.”
With regard to companies’ results he said, “overall the picture is good but the market is more and more aware of good results.”
Trichet said on Thursday the ECB might raise interest rates next month to fight accelerating inflation pressures.
An “increase of interest rates in the next meeting is possible,” he told reporters in Frankfurt after the central bank left its key rate at a record low of 1 percent. “Strong vigilance is warranted,” Trichet said, adding that any increase would not necessarily be the start of a “series” of moves.
“We think ECB rate hikes have the potential to have a considerable negative impact on the fragile situation in peripheral Europe, given that the periphery has all of the Euro-area’s excess leverage,” a group of strategists and analysts at Credit Suisse Group AG led by Andrew Garthwaite wrote in a note.
Fifty-six percent of STOXX 600 companies that have announced earnings since Jan. 10 have beaten the average analyst estimate for per-share profit, according to data compiled by Bloomberg.
National benchmark indexes fell in 12 of Europe’s 18 western markets. France’s CAC 40 index slipped 1.2 percent, the UK’s FTSE 100 Index fell 0.2 percent, while Germany’s DAX retreated 0.2 percent.
Bank of Ireland PLC retreated 13 percent, contributing to banking stocks being the worst performers among the 19 industries in the STOXX 600.
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