By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets declined for a
third straight day on Tuesday, after weak trade data from Germany
added to evidence that economic activity in the country has slowed
down.
The Stoxx Europe 600 index dropped 0.6% to 342.68, on track for
the lowest closing level in July.
Germany's DAX 30 index gave up 0.5% to 9,852.59, after trade
data showed both exports and imports fell in Germany in May,
creating further fears that Europe's economic engine is
cooling.
The data followed a meager industrial-production report for May
on Monday, a disappointing reading on manufacturing orders released
on Friday and softer-than-forecast unemployment data also out last
week -- all raising red flags about Germany's growth potential.
Stephen Pope, managing partner at Spotlight Ideas, said in a
note on Tuesday that a critical analysis of the German economy is
necessary, as the overall GDP looks to the industrial sector for
28% of its value. With the recent weak data, the economy is on
track to expand by only 0.1% quarter-on-quarter in the second
quarter, indicating a 0.4% annualized rate. That would be a
"tremendous decline" from first quarter's 3.3% annualized rate,
Pope said.
"If the number one [European] economy is running at anything
less than full tilt, then the overall region will struggle to
expand, and the ECB will face an enduring headache of disinflation
leading to deflation," he said. "Without a vibrant Germany, the
18-member euro zone will struggle to expand."
Elsewhere in Europe, France's CAC 40 index lost 0.5% to
4,382.80, while the U.K.'s FTSE 100 index fell 0.5% to
6,789.48.
Stocks in London were weighed by fresh data on U.K. factory
output for May, which unexpectedly fell and showed a broad based
decline. The news also hurt the pound (GBPUSD) that fell to $1.7109
from as high as $1.7149 ahead of the data.
Economists, however, didn't seem to worry too much about the
weakness. Rob Wood, chief U.K. economist, at Berenberg said the
data were "unlikely to be a true reflection of what is happening in
the sector" and that a big bounce-back in output is possible next
month.
Chris Williamson, chief economist at Markit, also cautioned not
to read too much into one month's data and noted that the more
stable three-month trend rate of growth in the official data
remains historically strong at 1.1%, which is broadly in line with
the PMI survey.
Stock movers
Among notable movers, shares of Air France-KLM slumped 4.6%
after the airline company lowered its 2014 earnings guidance due to
weak demand and difficulties in repatriating revenue from
Venezuela.
Commerzbank AG gave up 3.7% after reports that the German lender
has begun settlement talks with U.S. regulators over its payment
activities with Iran and other countries blacklisted by the U.S. A
representative from Commerzbank wasn't immediately available to
comment.
Also in Frankfurt, shares of Volkswagen AG slipped 0.6% after
the auto maker said sales of its namesake-branded cars in the first
half of the year were weak in Europe and continued to slide in the
U.S. and South America.
Sodexo SA gained 0.5% after Société Générale lifted the catering
and facilities-management company to buy from hold.
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