By Carla Mozee, MarketWatch
ZEW sentiment survey underscores worries
LONDON (MarketWatch) -- German stocks dropped more than 1%
Tuesday, taking a hit after the ZEW sentiment survey plunged,
missing already low expectations and underscoring anxiety about
slowing in Europe's largest economy.
"Fear is back," said ING economist Carsten Brzeski in a note.
"The German ZEW just sent more signs of caution, showing ...
financial-market participants are increasingly becoming
pessimistic."
The closely watched ZEW indicator of economic expectations fell
to 8.6 in August, significantly below an estimated 18.0 reading
from a Wall Street Journal poll of analysts. The drop likely
stemmed largely from worries about Russia's conflict with Ukraine,
as German industries have for months been warning that sanctions
against Russia will crunch their businesses.
The Center for European Economic Research, which conducts the
ZEW survey, said figures on industrial production and incoming
orders "suggest markedly reduced investment activities on the part
of German firms against the backdrop of uncertain sales
prospects."
The lead ZEW indicator is now at its lowest level since December
2012 and marked the eighth consecutive month that expectations for
the economy worsened.
Market reaction: Henkel AG & Co. shares suffered the biggest
losses on Germany's DAX 30 index, sliding 5.5% after the German
consumer-products company warned that it foresees "the escalation
of the Russian-Ukrainian conflict as well as the persisting
political turmoil in the Middle East to have a negative impact" on
the market environment.
The DAX 30 index fell 1.2% to 9,069.47. Only two index members
managed to advance, with Commerzbank AG picking up 1.5% and Adidas
AG up 0.7%. The DAX is down nearly 10% from its all-time high of
10,050.98, reached on June 20.
The euro (EURUSD) dropped to a near nine-month low against the
U.S. dollar after the dreary ZEW results. The euro was buying
$1.3360, down from $1.3384 in North American trade late Monday. In
the fixed-income market, the yield on the 10-year German bund shed
less than 1 basis point to 1.060%, remaining near record lows.
The Stoxx Europe 600 fell 0.2% to 328.74.
Views: So far, the fallout of the crisis in Ukraine has been
limited to a general return of uncertainty and a sharp drop in
German exports to Russia, but further escalation of the crisis
"could start to really hurt the economy," wrote ING's Brzeski.
"This is why strengthening domestic demand, particularly domestic
investment, should continue to be a top priority for all
policymakers. Just hoping for the positive World Cup effect might
not be enough."
Meanwhile, Germany's purchasing managers' index surveys, due
Aug. 21, may be the "next shoe to drop," said Ashraf Laidi, chief
global strategist at City Index, in a note Tuesday. "Any pullback
towards the 50-level will trigger the alarms with regards to the
euro zone's biggest economy," he wrote.
Laidi pointed out that more than 500 German manufacturing and
services companies are respondents in the PMI surveys, compared
with up to 350 financial and economic analysts for the ZEW. "The
PMI's greater pool of respondents may be a reason behind dampened
volatility in the surveys."
In other European markets Tuesday, France's CAC 40 lost 0.9% to
end at 4,162.16, and the U.K.'s FTSE 100 shed less than 1
point.
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