By Josie Cox
European stock markets snapped a three-session winning streak
Friday, weighed by investor caution ahead of the results of a
sweeping EU bank stress test, and after the latest case of Ebola
was confirmed in New York City overnight.
The Stoxx Europe 600 closed the session 0.3% lower, mirroring
declines on most major country indexes, and ending a three-session
gain which had largely been triggered by hopes that the European
Central Bank may discuss buying corporate bonds in a move to beef
up its economic stimulus program.
On Sunday, scorecards for around 150 lenders are scheduled to be
made public in a choreographed series of announcements in London,
Frankfurt and other financial capitals across the continent,
designed to shine light on how strong balance sheets are and how
capable banks are of surviving a deteriorating economic
environment.
"Following our assessment of several banking systems in a series
of reports published over the past year, we have identified
vulnerabilities in some banks in Italy, Greece, Portugal and
Germany, while most banks in Spain and France appear well
positioned," credit analysts and economists at Barclays wrote in a
note.
Jens Vanbrabant, a portfolio manager at ECM Asset Management
added that he anticipates most banks to pass, and the total capital
shortfall to be manageable, but warned that this doesn't
necessarily mean that the banking sector is out of the woods.
"Europe's banking system remains weak overall and appears unable
to grow lending meaningfully in the near term," he said.
Despite shrinking their balance sheets, European banks are still
the largest in the world and the industry remain "fragmented and
inefficient" in a number of countries, he added.
Elsewhere Friday, Ebola reappeared on the market's radar after a
doctor who had recently returned to the U.S. from West Africa
tested positive for the virus.
Overall, at least 9,936 people have now been infected with Ebola
due to the West African outbreak, according to the World Health
Organization but Kit Juckes, a strategist at Société Générale in
London said while the news of the latest case is "depressing", the
ripple effect is likely to be limited.
U.S. markets shrugged it off, and in late European trade, he
S&P 500 was up 0.3% at 1,949.80.
Corporate earnings also provided little solace for markets
Friday.
After the U.S. market close Thursday, retail company Amazon.com
Inc. reported a net loss of $437 million in the third quarter,
worse than its year-earlier loss of $41 million.
In Europe Friday, Germany's BASF SE lowered its outlook for 2015
and reported a 4.8% decline in third-quarter profit, hurt by the
slowing global economy and weaker demand in Europe.
In the U.K. retail space, Tesco PLC's credit rating was cut to
Baa 3 from Baa 2 by Moody's Investors Service Inc. Thursday after
the market close, taking the company to the cusp of junk and
sending its shares close to the bottom of the FTSE index in early
trading Friday.
"While in our opinion Tesco has a number of levers it can pull
to enhance its financial flexibility and has no material debt
maturities over the next two years, we don't expect to see too many
investors adding the name to their portfolios for now," credit
strategists at Mitsubishi UFJ Securities wrote in a note.
In currency markets Friday, the euro was around 0.2% higher
against the U.S. dollar at $1.2673. Sterling also rose against the
dollar to $1.6087 after figures showed that the economy had
expanded a quarterly 0.7% in the third quarter and 3% on the year,
in line with expectations.
Azad Zangana, European economist at Schroders said that even
though the economy expanded less than in the previous quarter, the
rate is only slightly below average growth since the start of 2013,
"and remains indicative of a robust economy".
"Looking ahead, we expect a similar growth rate in the final
three months of the year, but forecast a further moderation in
growth in 2015 as uncertainty over the general election begins to
weigh on confidence, and fiscal consolidation post the election
hits domestic demand," he added.
In commodity markets, Brent crude was trading 0.9% lower by the
end of the day at $86.07 a barrel, while gold inched 0.1% higher to
$1,230.20 a troy ounce.
Write to Josie Cox at josie.cox@wsj.com