By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- Europe's benchmark stock index inched
ahead in a choppy session on Wednesday, but failed to follow
through on its biggest rally in eight months, as investors weighed
weak data out of the U.S. and focused on an upcoming European
Central Bank meeting.
The Stoxx Europe 600 index inched up 0.1% to 337.68, after
jumping 2.1% on Tuesday. The move was the largest one-day
percentage gain since early July, triggered by easing tensions
between Russia and Ukraine after Russian troops were called back to
their bases and President Vladimir Putin stressed he wouldn't use
military force just now.
Among major movers in Wednesday's trade, shares of Subsea 7 SA
dropped 7% after the offshore-engineering firm said earnings per
share fell more than 40% in the fourth quarter.
Shares of Melrose Industries PLC dropped more than 8% after the
investment company reported a rise in full-year adjusted pretax
profit, but says it faces headwinds from the current strength of
the pound.
On a more upbeat note, shares of Carrefour SA advanced 4.3%
after the French supermarkets giant said operating profit grew 5.4%
last year.
Euro-zone economic data and the ECB
More broadly, investors focused on fresh data on the euro zone.
Eurostat, the statistical office of the European Union, said retail
sales in January jumped a better-than-expected 1.6% in the currency
union compared with December, fueled by a solid increase in the
nonfood sector. A second estimate on GDP growth confirmed the
euro-zone economy expanded by 0.3% in the fourth quarter.
Additionally, the purchasing managers index for the euro bloc
showed its economy grew faster than estimated in February, sending
the composite PMI to the highest level since June 2011.
The data will be something for the ECB to consider when it meets
on Thursday. Some analysts say the central bank could ease policy
given the fact inflation in the region has been steadily
falling.
"The main focus at tomorrow's ECB Governing Council meeting will
be on the staff's updated economic forecasts, and in particular
whether inflation is likely to remain below target in 2016, thus
potentially creating room for further monetary policy action in the
coming months," said Tom Rogers, senior economic adviser to the EY
Eurozone Forecast.
The real question, he said, is whether the ECB will tolerate an
"ongoing risk of deflation" in the periphery where they expect
sluggish prices in places such as Greece, Spain and Portugal. He
said it's likely the ECB will continue to underline the fact it has
easing options, but hold off using them unless the recovery takes a
turn for the worse.
In the U.K., the Markit/CIPS services PMI for February came in
at 58.2, exceeding analyst expectations, but slipping from the 58.3
recorded in January.
In the afternoon, the U.S. ADP jobs report showed that
private-sector hiring remains weak, hurt by weather, ahead of
Friday's bigger nonfarm payroll data. The Institute for Supply
Management's non-manufacturing index expanded at a sharply slower
pace than expected. Wall Street was trading flat in early
action.
Among country-specific indexes in Europe, the U.K.'s FTSE 100
index lost 0.5% to 6,790.45, while Germany's DAX 30 index fell 0.2%
to 9,570.23. France's CAC 40 index was flat at 4,399.80.
Ukraine-Russia standoff
Investors also watched for developments in the Ukraine-Russia
standoff, with Nato and Russia expected to discuss the latest
developments at a special meeting on Wednesday. Nato said on
Tuesday it continued to support a peaceful solution to the crisis,
but that Russia is violating "Ukraine's sovereignty and territorial
integrity."
Analysts at UBS said markets shouldn't underestimate what's at
stake and that the "risk premia in financial assets certainly do
not seem excessive." The situation is a "bad advertisement" for
emerging markets at a sensitive time, they said, and the
consequence could be redemption pressures on emerging-market bond
funds.
"If the situation in Ukraine fails to de-escalate, we believe
flow pressure on EM funds could impact markets such as Hungary,
South Africa and Turkey, which have minimal economic linkages with
Russia and Ukraine," they said.
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