By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets declined on
Wednesday after the final reading of the euro-zone services PMI
confirmed growth in the sector, but fell short of expectations.
The Stoxx Europe 600 index fell 0.3% to 342.50, after posting a
0.5% loss on Tuesday.
Shares of Volkswagen AG dropped 1.7% to 192.35 euros ($261.83),
after the car maker said it had placed more than 10 million new
shares at EUR191 a share, raising EUR2 billion.
Shares of Vodafone Group PLC (VOD) lost 1.6% in London after the
U.K. telecoms regulator Ofcom revealed proposals to cut what mobile
operators can charge consumers to make calls
On a more upbeat note, shares of Credit Suisse Group AG (CS)
climbed 1.8% after Goldman Sachs lifted the bank to buy from
neutral and added it to its conviction buy list.
Goldman Sachs also lifted Deutsche Bank AG (DB) to neutral from
sell, sending the shares 0.2% higher.
More broadly, investors digested the latest purchasing managers'
indexes from the euro zone. The final services PMI for the area
came in at 53.2, down from the flash estimate of 53.5, but higher
than the 53.1 recorded in April. A reading above 50 signals
growth.
The composite euro-zone PMI also missed expectations and fell to
53.5 in May, from 54 in April. The flash reading had forecast a
53.9 print.
The data further sketched out the divergence between the euro
zone's two largest economies, as Germany continued to report strong
output growth, while France slipped back into contraction in
May.
Growth data from Eurostat also confirmed that picture. The EU's
statistics office said the German economy grew by 0.8% in the first
quarter, while the French economy stagnated. For the euro zone,
Eurostat said the gross domestic product expanded by 0.2% in the
first three months of the year, confirming a previous estimate.
All eyes on the ECB
The data came a day ahead of the highly anticipated European
Central Bank meeting, where most economists expect some kind of
monetary easing. Consensus is for a cut in interest rates, taking
the deposit rate into negative territory for the first time in
euro-zone history. Read: How to invest if the ECB cuts rates below
0%
Analysts also predict that the central bank will introduce a
package of liquidity measures to boost bank lending, spur growth
and fight off low inflation.
Preliminary inflation data for May released on Tuesday
highlighted the need for a new round of ECB easing measures, as
growth in euro-zone consumer prices unexpectedly fell to a
more-than four-year low.
There has also been speculation as to whether the ECB will
launch a full-scale quantitative easing program at the meeting on
Thursday, but most analysts think it'll be premature.
"But it is getting awfully close and we expect the ECB to make
clear that QE will be deployed next in case of any further
deterioration in inflation expectations," analysts at Barclays said
in a note.
Among country-specific indexes on Wednesday, Germany's DAX 30
index gave up 0.4% to 9,879.27, while France's CAC 40 index lost
0.6% to 4,477.35.
The U.K.'s FTSE 100 index dropped 0.3% to 6,814.83. The London
benchmark moved a leg lower in midmorning trade after
better-than-expected services PMI added to speculation the Bank of
England could lifts its interest rate from a record low as soon as
this year. The pound (GBPUSD) pared losses after the data and
traded at $1.6736, compared with an intraday low of $1.6699 ahead
of the report.
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