European Stocks Drop for First Time in Three Days; Banks Retreat

  • ECB said to have started its corporate bond-buying program
  • World Bank cuts global-growth outlook, warns of downside risks

European Stocks Retreat After Two Days of Gains

European stocks declined, snapping their biggest back-to-back gains in two weeks, as banks and carmakers fell.

Spanish and Italian lenders slid, with UniCredit SpA and Banco Popular Espanol SA down at least 4 percent. Erste Group Bank AG retreated 3.8 percent after one of its holders sold a stake. French payments processor Ingenico Group SA slid 7.2 percent after peer VeriFone Systems Inc. cut its annual earnings and revenue forecasts.

The Stoxx Europe 600 Index lost 0.5 percent at the close of trading. Volkswagen AG and BMW AG dropped 1 percent or more as a strengthening euro dragged on exporters. The World Bank late yesterday cut its outlook for global growth and said downside risks have become more pronounced since the start of the year.

“Markets are generally struggling to find a direction at a time when economic data is not bad, but it’s not great either,” said Michael Hewson, a market analyst at CMC Markets in London. “Ultimately, the global outlook remains pretty weak. The World Bank did not just cut the forecast, it suggested that the risks were tilted to the downside. Now we are getting a little bit of profit taking.”

After falling as much as 5.4 percent from an April 20 high, European shares regained momentum at the end of May, posting their biggest monthly advance since November. Still, stocks have struggled to top that peak as global-growth worries war with optimism over continued central-bank support. Before today’s decline, the Stoxx 600 gained for two days amid rising oil and Federal Reserve Janet Yellen’s reassurance that the U.S. economy is making progress.

The European Central Bank began buying corporate bonds today, people familiar with the matter said. Purchases included French utility Engie SA, Spain’s Telefonica SA and Italian insurer Assicurazioni Generali SpA, they said.

Utilities gained, with Engie up 2.6 percent and Germany’s RWE AG and EON SE rising at least 2.8 percent. Commodity and energy producers also advanced, bucking the trend.

Investors are focused on central-bank and political events this month: the Fed announces its rate decision on June 15, a referendum on June 23 will determine Britain’s membership in the European Union and Spain’s general election is due three days after that.

“When you’ve got a fragile global economy, the last thing you want is events like the U.K. referendum and the Spanish election with an uncertain outcome,” said Hewson. “They are adding to the tail risks.”

Traders have pushed back bets for a U.S. rate hike after last week’s disappointing jobs report. They are pricing in no chance of a boost in June, and December is now the first month with more than even odds of higher borrowing costs.

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