Oil stocks push Europe down
April 4, 2002 Posted: 11:43 AM EST
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| A trader checks share prices at the Frankfurt Stock Exchange |
LONDON, England (Reuters) - European bourses closed mostly lower as a downbeat statement from BP whacked oil stocks, U.S. weekly unemployment jumped and the Middle East conflict stoked fears.
"The recovery is not off the ground yet and there's a danger it could be nipped in the bud in its infancy," said Martin Brooker, pan-European equity strategist at Credit Lyonnais Securities in London.
"I think a lot of economists who have been very cocky over the last month, revising expectations up to ridiculous levels, are starting to backtrack."
With most European markets closed, the FTSE Eurotop 300 index of pan-European blue chips was 0.96 percent lower on Thursday while the narrower DJ Euro Stoxx 50 index was off 1.6 percent.
Both the Bank of England and the European Central Bank kept interest rates unchanged, as expected, and some observers said new-found uncertainty over the timetable for economic recovery meant the need for rate rises was receding.
The Middle East conflict has pushed oil prices to six-month highs. That will weigh on profits in oil-dependent sectors like chemicals and could also subdue consumer spending, lessening the need to increase the cost of money.
"The oil price might stay at these elevated levels for longer than people expect, impacting on the economic data in the U.S.," Brooker said.
"I think we're already seeing that if you look, for example at U.S. car sales or today's initial claims figures, which show that the labour market isn't out of the woods yet."
U.S. first-time jobless claims for last week soared to 460,000 against expectations of a 376,000 rise.
Economists said the data were distorted by the introduction of a federal programme which extends benefits, but nevertheless the figures do not auger well for Friday's influential non-farm payrolls report.
"We still think that the U.S. labour market will continue to deteriorate and will not stabilise until the second half of the year," said Rene Defossez, chief economist of CDC-IXIS Capital Market in Paris.
Worst trading environment for a decade
BP depressed the oil sector by revealing that it struggled to lift output in the first quarter of 2002 and its margins on refining and the sale of oil products tumbled.
It described the current trading environment as the worst in a decade.
"The marketing and refining margins were pretty dismal," said David Cumming, head of UK equities at Standard Life. "The production growth number certainly means there is a lot of catch-up needed in the second half..."
The company's stock fell 2.4 percent and its massive weighting hit indices hard.
Energy was easily the biggest decliner on the DJ index of sectors, shedding 2.5 percent, and accounted for just under half the fall registered by the FTSE Eurotop 300.
France's TotalFinaElf ended the session as the biggest blue-chip decliner in Europe, off 3.4 percent.
Those falls would perhaps have been greater had it not been for the higher oil price, which dented the oil-dependent chemicals sector and helped send Bayer's share price down 2.7 percent.
Technology was another poor sectoral performer, dragged down by French telecom equipment gear maker Alcatel and Dutch electronics giant Philips.
On the upside, British telecoms operator BT was easily Europe's biggest heavyweight gainer, jumping 3.6 percent after saying that Ben Verwaayen, the group's new chief executive, will lay out his strategy next Monday.
Also among the risers was the world's leading cosmetics firm L'Oreal, up 0.3 percent after reporting first-quarter sales up a better-than-expected 9.3 percent.
Friday marks the start of the first-quarter reporting season in the United States, and many strategists are expecting another torrid few weeks.
"Cyclicals have outperformed defensives by 35 percent in the last quarter and if you look back at the last three business cycles that's historically about as much outperformance as you can expect to get," Credit Lyonnais' Brooker said.
"The cyclical recovery has now been factored into share prices and yet we're still not seeing a recovery in earnings."
As most of Europe closed, Wall Street was slightly firmer.
The Dow Jones industrial average was up 0.09 percent while the tech-laden Nasdaq Composite rose 0.22 percent.
