London: European shares slipped on Tuesday after ratings agency Moody’s put the United Kingdom’s triple-A rating in jeopardy for the first time and warned it may cut France as well, while downgrading six euro zone nations including Spain and Italy.
Strong results, however, from French cosmetic giant L’Oreal and German truck maker MAN helped limit losses, though a surprise loss from Germany’s biggest steelmaker ThyssenKrupp disappointed.
Traders said most positions were short-term bets, with ongoing worries about whether the European Union and the IMF would accept the fresh austerity cuts approved by the Greek parliament needed to avoid a chaotic default also impacting sentiment.
The ratings move by Moody’s was a reminder to investors about the problems faced by the Europe to fight the debt crisis, with the agency saying it was concerned about whether governments could implement the reforms necessary to address it.
“Moody’s UK warning is not great for the market, and investors do take notice if France gets cut as it could impact its ability to raise capital,” said Andrea Williams, who manages $2.1 billion for Royal London Asset Management.
“Greece is still in the background and with all the austerity cuts which are happening in Europe it just goes to show how much the economies are suffering.”
Williams had invested in Scandinavian banks, which she said were more shielded from the euro zone debt crisis than those based in Southern Europe.
French banks, which have exposure to euro zone sovereign debt and would take a hit if France’s rating was cut, were among the biggest fallers, with BNP Paribas down 2% and Societe Generale down 2.4%.
Italian and Spanish yields rose after Moody’s cut their sovereign ratings, and investors will closely watch a bond auction in Italy later this morning which will test demand for debt.
The slowing economic growth had an impact on the results of Germany’s biggest steelmaker ThyssenKrupp, which fell 2.4% in the bottom performers list after it posted a surprise operating loss in its fiscal first quarter.
By 03:00 pm, the pan-European FTSEurofirst 300 index of top shares was down 0.2% at 1,069.18 points.
But the index is up 21.3% since it hit a low in September 2011 as sentiment improved about economic growth and an offer by the European Central Bank to lend banks cheap money eased worries about capital raising in the banking sector.
L’Oreal Gains
Losses were limited after some companies results came in strong, with L’Oreal rising 2.2% to feature in the top movers list helped by sales in emerging markets.
Above-forecasts results from MAN saw it rise 1.4% to also become a top mover.
Out of the 43% of companies that have reported on the STOXX Europe 600 and 51% have either beaten or met expectations, while 49% have missed, according to Thomson Reuters StarMine data.
“The more growth-levered assets have outperformed, and have regained more of their summer declines,” Goldman Sachs analysts said in a note.
“Whereas the more European-levered assets have tended to lag. We have less comfort with European risks, so have tended to back the growth rally so far.”