By Josie Cox
European markets edged lower Friday ahead of the results of
sweeping EU bank stress tests, with traders' moods darkened by news
that a case of Ebola was confirmed in New York City overnight.
By midmorning, the Stoxx Europe 600 was trading 0.3% lower,
mirroring declines on most major country indexes, after a
three-session winning streak.
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.
Earlier this week, Gildas Surry, an analyst at BNP Paribas SA,
said he expects a dozen small banks, including Austria's
Oesterreichische Volksbanken AG and Irish state-controlled lender
Permanent TSB, to fail the tests. Both declined to comment.
Mr. Surry also said as many as 19 other banks will technically
fail the test but have raised enough capital since the end of 2013
to satisfy regulators and avoid further action.
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 unlikely to reach beyond a dip in U.S. equity
futures.
The S&P 500 was indicated opening 0.2% lower at 1,941.90.
Futures, however, don't necessarily reflect moves after the opening
bell.
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 broadly flat against
the U.S. dollar at $1.2648. Sterling rose marginally against the
dollar to $1.6056, 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.
Ben Brettell, an economist at Hargreaves Lansdown said although
the figures mark a slowdown from the previous quarter this should
not be a cause for concern.
"The broad picture remains positive. Growth is still strong at
3.0% year-over-year, and the International Monetary Fund recently
forecast the U.K. economy will outstrip the rest of the developed
world over 2014 as a whole," Mr. Brettell said.
"The data are a reminder that the U.K. economy continues to
perform well, " BNP Paribas economist Colin Bermingham echoed.
In commodity markets, Brent crude was trading 0.7% lower on the
day at $86.25 a barrel, while gold edged 0.3% higher to $1,232.70 a
troy ounce.