By Josie Cox and Tommy Stubbington
European stocks fell Monday after weaker-than-expected German
industrial data encouraged investors to take profit on last week's
gains.
The Stoxx Europe 600 index shed 0.9%, following a 1.7% gain last
week.
Markets extended declines after U.S. stocks pulled back from
last week's record highs at the open.
Germany's DAX closed 1.0% lower after data showed that
industrial production in the country declined in May at the
sharpest rate since April 2012, weighed by a fall in both
manufacturing and construction output.
That led Barclays' economists to trim their outlook for second
quarter German gross domestic product data to a quarter-on-quarter
increase of just 0.1% from a rise of 0.4% previously.
"In light of these weak monthly figures, it is likely that
industrial production has declined markedly in the second quarter
overall," economist Thomas Harjes wrote in a note.
Lee Hardman, a currency economist at Bank of Tokyo-Mitsubishi
UFJ, wrote in a note that this was a further signal that Europe's
economic recovery remains "relatively weak and fragile," which is
unlikely to prompt investors to reassess the European Central
Bank's currently dovish policy stance.
Last week, the ECB council kept its main lending rate at 0.15%
and maintained a -0.1% rate on bank funds deposited with the
central bank.
Rates will stay at current levels for "an extended period,"
President Mario Draghi said during a news conference. Even though
he didn't specify a time frame, many analysts now expect the period
to last at least through 2016, given the ECB's inflation
forecasts.
Currency markets were subdued Monday, with the euro
little-changed against the U.S. dollar, at $1.3604. Late last week,
the dollar gained against a whole basket of currencies, after
nonfarm employment advanced at a rate of 288,000 in June,
comfortably beating expectations.
The U.S. unemployment rate, meanwhile, fell to 6.1% in June, the
lowest level since September 2008, leading many to reassess and
bring forward their expectations for a first rate increase by the
Federal Reserve.
Goldman Sachs, for example, has moved its forecast for a rise
forward, for the first time since the global financial crisis. The
bank now expects to see a rate increase as early as the third
quarter of 2015, from a previous predictions in the first quarter
of 2016.
Jan Hatzius, an economist at Goldman Sachs, said their decision
came "in response to the cumulative changes in the job market,
inflation, and financial conditions over the past few months."
On Wednesday, the central bank is due to publish minutes of its
rate-setting Federal Open Market Committee, which could shed more
light on the timetable for potential action.
Back in European equity markets, Dutch postal company PostNL NV
was the largest gainer on the pan-European index Monday, with
shares adding more than 15% after the company raised its full-year
guidance following a strong mail performance in the
Netherlands.
One of the biggest losers was German broadcaster Sky
Deutschland, after Japanese bank Nomura cut its recommendation on
the group to neutral from buy and trimmed its target price to EUR7
from EUR8.50 per share.
Nomura also lowered its earnings and free cash flow forecasts
for the group citing higher costs which the company will have to
stomach to hit subscriber growth targets.
In commodities markets, gold dropped 0.4% to $1,315.30 an ounce,
while Brent crude oil fell 0.4% to $110.23 a barrel.
Write to Josie Cox at josie.cox@wsj.com and Tommy Stubbington at
tommy.stubbington@wsj.com