By Carla Mozee, MarketWatch
FTSE MIB falls as Italy returns to recession
LONDON (MarketWatch) -- European stocks hit intraday lows
Wednesday after Italy returned to recession, coming on top of
market unease about escalating tensions between Russia, Ukraine and
the West.
Italy's FTSE MIB equity index slid 3% after Italy's statistics
agency said gross domestic product declined 0.2% in the second
quarter from the first quarter, leaving the country in recession.
Analysts polled by FactSet had expected modest GDP growth of 0.1%
in the second quarter.
Of the 40 stocks that make up the MIB index, only shares of
premium tire maker Pirelli &C. SpA and footwear maker TOD's Spa
moved higher, by 0.9% each.
COMMENTS: Italy has taken some steps to improve the economy, but
"the pace of new reforms is quite simply too slow and too
unambitious," said Mads Koefoed, head of macro strategy at Saxo
Bank, in a note. "Considering the development in [the first half],
Italy should be happy just to have a stagnating economy this year.
Something which requires 0.3%-0.4% quarterly growth in both
remained quarters."
Morgan Stanley said it at best "expect[s] no growth in 2014, and
an expansion of just 1%Y in 2015, partly driven by the recent tax
cuts and ECB credit easing, though both effects are likely to be
rather small."
Russian risk: The Stoxx Europe 600 fell 1.3% to 327.87. Stocks
started in the red, following losses on Wall Street on Tuesday and
in Asia on Wednesday. Those declines were spurred by reports Russia
has dramatically increased the number of troops and vehicles at its
eastern border with Ukraine, and after the Polish foreign minister
warned of the potential for an invasion. Earlier Tuesday, Russian
President Vladimir Putin ordered his government to prepare
retaliatory measures against U.S. and European economic sanctions
imposed on Russia.
Losses among blue-chips in Russia pulled the Micex index down
1.5%. In Paris, the CAC 40 shed 1.1%.
Counter-sanctions by Russia won't impose huge costs on European
economies, said Holger Schmieding, chief economist at Berenberg, in
a note Wednesday. But "the biggest risk to our modestly optimistic
European calls is the confidence shock which an open Russian
invasion of Ukraine could cause across core Europe and beyond,"
said Schmieding. "In uncertain times, businesses invest less and
consumers may buy fewer cars. Putin's behavior over the next few
weeks is the key tail risk to watch."
German data: In another downbeat data point Wednesday, German
manufacturing orders unexpectedly fell 3.2% in June from May on
adjusted terms. Analysts polled by The Wall Street Journal had
expected a rise of 0.8%. Manufacturing orders in May from April
declined 1.6%. In Frankfurt, the DAX 30 fell 1.5%.
Also read: Iliad, Swiss Re, Telecom Italia lead Europe stock
losses
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