By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- A raft of disappointing earnings reports
from European heavyweights pushed the region's benchmark stock
index to the lowest close since April on Thursday, while another
soft inflation reading for the euro zone offered little
consolation.
Meanwhile, a "selective default" by Argentina kept investors in
a downbeat mood.
Data: More or less as expected, inflation in the euro zone
dropped to 0.4% in July from 0.5% in June, marking the lowest level
since October 2009. The weakness is a setback to the European
Central Bank, which in June launched a package of liquidity
measures aimed at boosting growth and bringing inflation more in
line with the bank's goal of just below 2%.
In a bit better piece of news, unemployment in the currency
union fell to 11.5% in June, from 11.6% in May, reaching its lowest
level since September 2012.
The number of Germans without a job fell more than expected in
July, while the unemployment rate was unchanged at 6.7%.
In the U.K., a survey from British lender Nationwide showed
house prices in the country in July rose at the slowest pace since
April last year.
Market reaction: All major European markets closed in deep red.
The Stoxx Europe 600 index lost 1.3% to end at 335.99, marking the
lowest close since late April. For July, the benchmark dropped
1.7%, the biggest monthly slide since January.
Germany's DAX 30 index slumped 1.9% to 9,407.48, for a 4.3%
decline for July. France's CAC 40 index gave up 1.5%, closing 4%
lower on the month.
The U.K.'s FTSE 100 index dropped 0.6% to 6,730.11, erasing its
monthly gain to end 0.2% lower in July.
The euro (EURUSD) slipped to $1.3385, from $1.3397 late
Wednesday.
Comments: Describing the poor stock market performance this
month, Fawad Razaqzada, technical analyst at Forex.com, said in a
note that "July has been a month many equity investors,
particularly those in Europe, would like to forget."
"Sentiment has been hit by a number of factors, not least the
continuing geopolitical risks stemming from the crises in Ukraine
and Gaza. On top of this, Argentina has defaulted for the second
time since 2011 after last minute talks with bondholders broke
down," he said.
Howard Archer, chief U.K. and European economist at IHS Global
Insight, called the weak euro-zone inflation data a "blow" for the
ECB and said "it will fuel expectations that the bank will
ultimately have to take further action."
James Ashley, chief European economist at RBC Capital Markets,
noted that inflation has been below 1% for 10 straight months now,
so it "does not pass muster to present the current weakness as
being due to short-term noise."
"Rather it is the case that a bit of noise is merely amplifying
the more persistent (and broadening) disinflationary problem in the
euro area," he said in a note.
Banco Espírito Santo slump: The Portuguese banking sector was
back among major losers in Thursday's trade, led by a 42% slump for
Banco Espírito Santo SA . The slide came as the shares resumed
trade in midmorning action after the bank reported a record loss
for the second quarter.
Analysts at Citigroup downgraded BES to neutral/high risk, from
buy/high risk, and said there are still risks that could knock the
stock lower. These include a bail-in, undiscovered losses once the
new restructuring plan gets under way and reputational issues.
Among other Portuguese banks, shares of Banco Comercial
Português SA lost 4.4% and Banco Internacional do Funchal SA gave
up 3.2%.
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