European stock markets retreated yesterday as traders banked profits following last week’s rally, but the euro rose briefly to a fresh four-month dollar high on poor US manufacturing data.
London’s FTSE 100 index of top companies ended down 0.37 per cent at 5,893.52 points, while in Frankfurt the DAX 30 dipped 0.11 per cent to 7,403.69 points and in Paris the CAC 40 dropped 0.78 per cent to 3,553.69 points.
The Madrid market gave up 0.08 per cent and Milan dropped 0.93 per cent. “European equity markets are starting the new trading week off on a somewhat weaker note, pressured by lower markets in China on renewed growth worries,” said ETX Capital trader Markus Huber.
He added that “some moderate profit-taking after last week’s impressive gains and disappointment that the EU meeting in Cyprus didn’t yield any new steps in regard to combating the European financial crisis” also weighed in.
Despite yesterday’s falls, European markets have made strong gains over the past three months, with the FTSE up nearly eight per cent, the DAX surging about 19 per cent and the CAC by 15 per cent.
Meanwhile, Spain’s long-term borrowing costs rose above the six per cent level for the first time since the European Central Bank announced a new bond-buying programme to help eurozone countries.
The yield on 10-year Spanish bonds rose to 6.007 per cent at 1405 GMT on the secondary markets, against 5.085 per cent at Friday’s close.
Meanwhile, the European single currency hit another four-month high as poor US manufacturing data stoked expectations of more quantitative easing from the Federal Reserve, traders said.
In afternoon deals, the euro rebounded to $1.3172 – hitting a pinnacle last seen on May 4. It later fell back to $1.3127, unchanged from late in New York on Friday.
The dollar had dipped following a second straight monthly decline in the Fed’s Empire State manufacturing index for the New York region in September.
“Terrible US data can be perceived as good news by the fin-ancial markets if it extends the prospect of more QE from the Federal Reserve,” said research director Kathleen Brooks at trading website Forex.com.
The euro had been buoyed last week by a flight away from the dollar on expectations of higher US inflation caused by the added US stimulus. But the poor manufacturing data sent US stocks lower.
The Dow Jones Industrial Average slid 0.21 per cent to 13,564.48 points in midday trade. The S&P 500 slipped 0.15 per cent to 1,463.52 points, while the tech-rich Nasdaq shed 0.27 per cent to 3,175.31 points.
Global markets and the euro had rallied last week after the Fed said it would embark upon an open-ended programme of purchasing $40-billion per month in mortgage-backed bonds, known as quantitative easing (QE3).
“The Fed has implied that one goal of QE3 is to lift asset prices, including stocks. That (artificial) boost will get increasingly difficult if current earnings and economic trends continue,” Dick Green at Briefing.com said in a client note.
Asian markets ended mixed. Seoul lost 0.26 per cent, and Hong Kong rose 0.14 per cent. Shanghai tumbled 2.14 per cent, with shares tied to Japanese firms worst hit owing to a territorial dispute between Beijing and Tokyo that has sparked protests in China.