By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- Europe's benchmark stock index closed
slightly lower after its biggest rally in eight months, as
investors weighed weak U.S. data and focused on Thursday's European
Central Bank meeting.
The Stoxx Europe 600 index closed marginally lower at 337.06 in
a choppy session, after jumping 2.1% on Tuesday. The move was the
largest one-day percentage gain since early July, triggered by
easing tensions between Russia and Ukraine.
Among major movers in Wednesday's trade, shares of Subsea 7 SA
slid 7.8% after the offshore-engineering firm said earnings per
share fell more than 40% in the fourth quarter.
Shares of Melrose Industries PLC skidded 7.8% after the
investment company reported a rise in full-year adjusted pretax
profit, but said it faces headwinds from a strong U.K.
currency.
Shares of Carrefour SA climbed 4.4% after the French
supermarkets giant said operating profit increased 5.4% last
year.
Euro-zone economic data and the ECB
More broadly, investors focused on fresh economic data.
Eurostat, the statistical office of the European Union, said retail
sales in January jumped a better-than-expected 1.6% in the currency
union compared with December, fueled by a solid increase in the
nonfood sector. A second estimate on GDP growth confirmed the
euro-zone economy expanded by 0.3% in the fourth quarter.
Additionally, the purchasing managers index for the euro bloc
showed its economy grew faster than estimated in February, sending
the composite PMI to the highest level since June 2011.
The data should factor into the ECB's discussions when it meets
on Thursday. Some analysts say the central bank could ease policy
given that inflation in the region has been steadily falling.
"The main focus at tomorrow's ECB Governing Council meeting will
be on the staff's updated economic forecasts, and in particular
whether inflation is likely to remain below target in 2016, thus
potentially creating room for further monetary policy action in the
coming months," said Tom Rogers, senior economic adviser to the EY
Eurozone Forecast.
The real question, he said, is whether the ECB will tolerate an
"ongoing risk of deflation" in countries such as Greece, Spain and
Portugal. He said it's likely the ECB will continue to underline
the fact it has easing options, but hold off using them unless the
recovery takes a turn for the worse.
In the U.K., the Markit/CIPS services PMI for February came in
at 58.2, exceeding analyst expectations, but slipping from the 58.3
recorded in January.
In the afternoon, the U.S. ADP jobs report showed private-sector
hiring remains weak, hurt by weather, ahead of Friday's bigger
monthly jobs report. The Institute for Supply Management's
non-manufacturing index expanded at a sharply slower pace than
expected. Wall Street was trading mixed.
Among country-specific indexes in Europe, the U.K.'s FTSE 100
index lost 0.7% to 6,775.42, while Germany's DAX 30 index fell 0.5%
to 9,542.02. France's CAC 40 index inched 0.1% lower to
4,391.25.
Ukraine-Russia standoff
Investors also watched for developments in the Ukraine-Russia
standoff. Russia's foreign minister skipped a meeting with U.S.,
U.K. and Ukraine foreign ministers Wednesday.
Analysts at UBS said markets shouldn't underestimate what's at
stake and that the "risk premia in financial assets certainly do
not seem excessive." The situation is a "bad advertisement" for
emerging markets at a sensitive time, they said, and the
consequence could be redemption pressures on emerging-market bond
funds.
"If the situation in Ukraine fails to de-escalate, we believe
flow pressure on EM funds could impact markets such as Hungary,
South Africa and Turkey, which have minimal economic linkages with
Russia and Ukraine," they said.
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