By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- European stock markets dropped on
Tuesday after the OECD called on the European Central Bank to cut
interest rates immediately to fight low inflation, while UBS and
PostNL rose on solid earnings results.
The Stoxx Europe 600 index fell 0.3% to close at 336.04, after
swinging between small gains and losses earlier in the day.
Quarterly results were in the spotlight, Dutch mail and freight
company PostNL NV rallying 10% after it said it swung to a profit
in the first quarter and lifted its 2014 guidance.
Shares of UBS AG (UBS) closed up 0.3% after the Swiss bank
reported first-quarter earnings that beat expectations and said
profit rose to 1.1 billion Swiss francs ($1.25 billion), compared
with 988 million francs reported a year earlier. The bank also said
it aims to pay out at least 50% of net profits in capital returns
to shareholders, while still investing for growth.
On a more downbeat note, shares of Barclays PLC (BCS) dropped
5.2%, after the U.K. bank posted a 5% fall in adjusted
first-quarter profit as fixed-income trading continued to slow.
The loss weighed on the U.K.'s FTSE 100 index , which dropped
0.4% to 6,798.56 on its first trading day of the week. U.K. markets
were closed on Monday for a bank holiday. The pound (GBPUSD)
reached its highest level against the dollar since 2009 on Tuesday,
after the U.K. services purchasing managers index beat
expectations.
The broader investing mood in Europe was dented by a warning
from the Organization for Economic Cooperation and Development
about the euro zone's low level of inflation, urging the European
Central Bank to cut rates immediately. The organization said the
currency union is at risk of slipping into deflation -- or a period
of self-reinforcing price declines -- unless the ECB acts swiftly,
suggesting the main refinancing rate should be cut to 0% from the
current 0.25%.
The call came ahead of the ECB meeting on Thursday, when most
economists expect the Governing Council to make no changes to
monetary policy after inflation in April rose from March's
four-year low. Analysts at Barclays said in a note, however, that
the decision remains a close call and that a rate cut would
probably be the preferred option, if the ECB opts for more
easing.
Germany's DAX 30 index dropped 0.7% to 9,467.53, with a downbeat
note from Credit Suisse adding pressure. The investment bank moved
to a benchmark position on German stocks from overweight, citing
three reasons for the downgrade: Germany's growth premium relative
to Europe is shrinking; competitiveness and funding-cost advantages
are waning; and the country is exposed to Chinese risk, with triple
export-exposure compared with Europe.
At the same time, Credit Suisse lifted French stocks to
overweight from underweight in a bet on quantitative easing from
the European Central Bank. The CAC 40 index fell 0.8%, however, to
4,428.07. Shares of Alstom SA weighed in Paris, down 2.2%, after
the French government urged General Electric Co. (GE) to alter the
terms of its proposed $17 billion takeover of Alstom's energy
assets.
Global equity strategist Andrew Garthwaite said France would
benefit more than Germany from any ECB easing.
In data news on Tuesday, the composite euro-zone purchasing
managers index for April rose to 54, unchanged from the flash
reading, signaling the fastest rate of economic growth in almost
three years.
Retail sales for the currency union rose 0.3% in March, beating
analyst expectations. Sales have now risen in each of the first
three months of the year. Howard Archer, chief U.K. and European
economist at IHS Global Insight, estimated euro-zone GDP in the
first quarter to have grown by 0.4%.
"While still not exactly stellar, this would be the best
euro-zone GDP growth performance since the first quarter of 2011,"
he said.
Among other stock movers in Europe, shares of Bayer AG dropped
0.9% after Merck & Co. Inc. (MRK) agreed to sell its
consumer-care business to the German drug maker for $14.2
billion.
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