In Europe: Shares dip; Spain hit by deficit concerns

3 April 2012

“Very hard to see how Spain can have a sustainable recovery”…”upside bias” may overcome worries for now.

European shares fell on Tuesday, a day after recording their biggest daily gain in three weeks,with the Spanish market hit by concerns over its ability to tackle its deficit though the uptrend remained intact on the FTSEurofirst 300 index.

Spain’s IBEX was down 1.2 percent, underperforming the pan-European FTSEurofirst 300 which fell 0.4 percent to 1,081.14 points by 1040 GMT, remaining above its 50-day moving average at 1,074 which suggested some support for the index.

Spain’s public debt will reach 79.8 percent of gross domestic product in 2012, well above the European Union’s recommended 60 percent ceiling.

A rise in the number of registered jobless figures in Spain also added to the worries on the outlook for the economy.

“It is very hard to see how Spain can have a sustainable recovery, debt levels are high in the country and also with unemployment rising growth will be difficult,” Frances Hudson, global strategist at Standard Life Investments, said.

Ferrovial was the worst performer in Europe, down 4.3 percent in volumes that were nearly double its 90-day daily average. Traders said the company was a proxy for the Spanish economy and business would slow if Spain weakened.

Hudson said Standard Life Investments preferred the United States – where economic projections had been better – over Europe.

After the market close, investors will focus on the Federal Open Market Committee minutes from its meeting of March 13 to see if the U.S. central bank supports further monetary stimulus.

“We need more colour on the Fed’s position on quantitative easing and what economic data they need to see to justify more,” Veronika Pechlaner, investment manager for global equities at Ashburton, said.

Recent signals have suggested the Fed would probably want to see a marked deterioration in the recovery before a new wave of quantitative easing.


In the global equities portfolio, Pechlaner was sticking to more defensive large-cap stocks which have a stable dividend such as British American Tobacco and food group Nestle .

In Europe, Standard Life had invested in banks Swedbank and DNB Nor, which are based in economies that are stronger than those of southern Europe.

Buyers came for UCB, up 3.2 percent in volumes that were nearly double its 90-day daily average, after the U.S. Food and Drug Administration approved neupro for the treatment for Parkinson’s Disease and Restless Legs Syndrome.

Chartists expected the FTSEurofirst 300 index to resume its uptrend, having held above its 50-day moving average which it broke through in the previous session after forecast-beating U.S. manufacturing data.

“The bias is to the upside, while it is holding above its 50-day moving average and the index could move back up to 1,098 which is its last high reached on March 27,” said Lynnden Branigan, technical strategist at Barclays Capital.

“The 50-day moving average has been pretty pivotal for the index over the past few months and its break back above it yesterday is positive.”


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