Iberian markets under pressure; Spain’s benchmark drops 2%
By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) — European stock markets retreated on Wednesday, jeopardizing a two-day winning streak, as banks, retail and commodity-related equities drove bourses south across the Continent.
The Stoxx Europe 600 index (ST:STOXX600 279.48, -0.90, -0.32%) fell 0.5% to 279.05 in afternoon trading. It rose 0.9% in the prior session, the largest one-day percentage gain since Dec. 21.
Stocks in Europe pulled back slightly from deeper losses after a report by Automatic Data Processing Inc. showed U.S. private-sector employment increased by 297,000 in December. Wall Street opened modestly lower.
On tap in the Institute for Supply Management’s gauge of U.S. non-manufacturing activity for December, due out at 10 a.m. Eastern.
Koen De Leus, strategist at KBC Securities Bolero in Brussels, said markets in Europe are in the process of a much-needed correction.
“Last month we were at the stage where all the markets were really overbought,” said De Leus. “This is now clearly a correction of that overbought situation.”
He added that pension and other funds entered 2011 with money they had to invest, which is why markets saw a jump in the early part of this week. But he doesn’t think the correction will be a big one, saying he sees a further 5% knocked off the Stoxx Europe 50 index (ST:STOXX50 2,630, -2.17, -0.08%) — but with a bigger correction to come later in the year.
Spanish stocks drop 2%
Spanish stocks were under the most pressure on Wednesday. A Markit Spain Services PMI survey reported business activity decreased at its fastest pace in 12 months during December, with new business down for a sixth month.
“The macro is still driving the markets and so they will for a period of time,” said one trader in Madrid who asked not to be named.
Shares of BBVA SA (BBVA 9.68, -0.43, -4.26%) (ES:BBVA 7.42, -0.18, -2.41%) sank 4.3%, with the banking heavyweight dragging the Spain IBEX 35 index (XX:IBEX 9,719, -169.70, -1.72%) down 2% to 9,689. On Tuesday, BBVA sold €1.5 billion in covered bonds at a much higher yield than its European rivals.
Banco Santander was on Wednesday’s schedule as well, slated to auction a five-year euro benchmark covered bond. Shares of Santander (STD 10.37, -0.31, -2.90%) (ES:SAN 7.83, -0.16, -1.99%) fell 4.3% in Madrid.
Also on the periphery, the Portugal PSI 20 index (XX:PSI20 7,713, -68.55, -0.88%) dropped 0.9% to 7,714.96. Stocks moving to the downside included heavily weighted Galp Energia SGPS SA (PT:GALP 14.59, -0.23, -1.52%) , down 3.2%; Portugal Telecom SGPS SA (PT 11.15, -0.22, -1.94%) (PT:PTC 8.44, -0.14, -1.60%) , off 3%; and retailer Jeronimo Martins SGPS SA (PT:JMT 12.07, -0.17, -1.35%) , down 2.6%.
On Wednesday, Brazil’s state-run oil group Petrobras SA (PBR 37.25, +0.27, +0.73%) reportedly said it was mulling buying Italian oil group Eni SpA’s (IT:ENI 16.67, +0.04, +0.24%) 33% stake in Portugal’s Galp, according to media reports. Petrobras reportedly said no binding agreement had been reached, while Eni said no decision had been made over the stake.
Portugal’s government sold €500 million of six-month bills Wednesday, but the average yield of 3.69% was well above the 2.05% in a September auction.
