RGE Analysts

European Market Snapshot: Stocks Fall Amid Concerns Over Diverging Economic Growth in the Eurozone

European stocks fell amid concerns over the diverging economic growth in the eurozone despite a short-lived rally due to strong economic data from Germany. Major bourses rallied early in trading after Germany reported that Q2 GDP had grown by 2.2% q/q (4.1% y/y) lifting overall eurozone growth to 1%. However, the rally fizzled as investors focused on a multispeed recovery within the single currency areas with the periphery notably lagging the core considering the inevitable slowdown expected in H2 2010.

The Stoxx Europe 600 advanced 0.25% to 256.

In Germany, the DAX index declined 0.4% to 6,110.41. The index also declined 2.4% for the week.

In the United Kingdom, stocks advanced slightly with FTSE 100 up 0.18% to 5,275.44.The index is down 1% for the week.

In France the CAC 40 lost 0.3% to 3,610.91andis down 2.8% for the week.

In Russia, the MICEX fell 0.3% to 1,371.46 and is down 2.25% for the week.

Most major European currencies fell against the dollar on a renewed flight to safety sentiment. The euro traded down 0.4% to US$1.279, while the pound advanced 0.14% to US$1.560. 

German bunds rose with the 10-year yield falling 0.03bp to 2.39%, while the 10-year yield on gilts rose 0.06% to 3.12%. Sovereign CDS spreads widened except for Germany (narrowed 0.7bp), France (down 3.8bp) and Poland (narrowed 1.2bp) while cash spreads widened in the region. Corporate spreads were flat with the iTraxx Europe remaining 113 bps.

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