Europe: Stocks close down despite Draghi pledge

[LONDON] Europe's equities closed down Friday, losing steam after an early rally on the back of European Central Bank chief Mario Draghi's vow to continue its stimulus programme for "as long as needed" to stabilise prices.

The mood of investors turned sour in afternoon trading on continuing worries over Greece, and a new batch of discouraging consumer data out of the US.

London's benchmark FTSE 100 index of leading companies closed down 0.18 per cent to 6,960.49 points.

In Paris, the CAC 40 dipped 0.71 per cent to 4,993.82, while Frankfurt's DAX 30 lost 0.98 per cent to 11,447.03 points compared with the close on Thursday, when many traders were away for a public holiday in both European capitals.

Eurozone bond markets meanwhile calmed following a steep sell-off in recent weeks.

Wall Street stocks dropped into the red with news the University of Michigan's US consumer sentiment index plummeted to 88.6 in May, down from 95.9 in April.

That came on the heels of government data Wednesday showing flat retail sales in April.

As a result the Dow Jones Industrial Average shed 0.07 per cent in late morning trades to 18,240.03 points, while tech-rich Nasdaq Composite Index lost 0.12 per cent to 5,044.89.

The S&P 500, by contrast, was up 1.08 per cent at 2,121.1 points.

The same discouraging news that inspired Wall Street's dip was also behind the reversal of European indices from early gains to late losses.

"Big missteps in US Empire State manufacturing, industrial production and preliminary UoM consumer sentiment all took their toll on the markets this afternoon," said Spreadex analyst Connor Campbell.

"Given its recent behaviour it was perhaps too much to ask for the Eurozone to have a consistent, big-swing-less, end to the week. The region punished those with such lofty expectations this afternoon... after that flurry of weak data from the US."

"After a volatile week there was not quite the appetite for taking on more risk going into the weekend, especially with Greece seemingly days away from running out of cash," concurred CMC Markets analyst Jasper Lawler.

That downturn in European contrasted earlier gains fuelled by Mr Draghi's stimulus pledge.

"After almost seven years of a debilitating sequence of crises, firms and households are very hesitant to take on economic risk," said Mr Draghi in a speech at an International Monetary Fund forum.

"For this reason quite some time is needed before we can declare success, and our monetary policy stimulus will stay in place as long as needed for its objective to be fully achieved on a truly sustained basis," he said.

With the economy and inflation recently picking up, there has been speculation that the ECB would wind up early its unprecedented 1.1 trillion euro (US$1.3 trillion) asset-purchase program, widely known as quantitative easing (QE).

"Draghi reinforced the belief the central bank will carry out the QE programme in full," said IG analyst Stan Shamu.

"This seems to have been what investors wanted to hear as it had an immediate impact on markets, helping bond markets settle down and seeing equities rally as fears the ECB may pull the QE pin early abated."

In response, the euro rallied to another three-month peak at $1.1445, up from $1.1414 late in New York on Thursday, aided by this week's upbeat eurozone growth data. After sliding back to $1.1342 during the day, the euro rose back to $1.1435 as Europe closed shop.

News was generally kind to bond market activity as well.

"Bond prices peaked a little under a month ago but selling really picked up in the last couple of weeks, triggered largely by higher inflation expectations on the back of rising oil prices," Oanda analyst Craig Erlam told AFP.

He added: "The sell-off in bond markets does appear to be slowing though now, following what was quite a dramatic decline in a very short period of time."

Asian equities mostly advanced Friday following a healthy rally on Wall Street, while Tokyo was supported by a weaker yen and Hong Kong enjoyed strong buying.

Tokyo's Nikkei index climbed 0.83 per cent and Sydney added 0.66 per cent.

Hong Kong rallied 1.96 per cent on speculation authorities will soon announce a tie-up between the city's index and Shenzhen's, similar to that with Shanghai.

On the downside, Seoul fell 0.65 per cent, while Shanghai shed 1.59 per cent.

In company news on Friday, British drinks giant SABMiller announced the purchase of small London-based brewery Meantime, which is benefitting from booming British demand for craft beer.

In midday trade, SABMiller's share price rose 0.65 per cent to 3,623.5 pence after it announced the friendly takeover for an undisclosed sum.

AFP