Frankfurt: European shares fell on Thursday, hit by weak earnings from corporate heavyweights such as Credit Suisse and renewed sovereign debt concerns after Portugal’s government bond spreads widened.
At 4:25 pm the FTSEurofirst 300 index of top European shares was down 0.7% at 1163.22 points, after falling 0.4% in the previous session.
Shares in Credit Suisse fell 4% after the lender missed profit expectations in the fourth quarter on debt charges and after it cut its return-on-equity target due to tighter capital regulations.
Also under pressure was Denmark’s Danske Bank, which fell 10.3% on its plans to raise crowns 20 billion ($3.7 billion) in new capital and after it posted fourth-quarter profits below market consensus.
Adding to the corporate woe was news that Portuguese 10-year debt yields had risen above 7.4%, well beyond the 7% level which many believe to be unsustainable.
“Portuguese spreads are widening making some traders nervous again,” senior trader at ETX trading Markus Huber said. “On top of somewhat disappointing earnings -- from Credit Suisse for example -- this is weighing on investor sentiment,” he added.
Sector weakness and renewed concern over peripheral debt fed through into weakness among peripheral euro zone lenders, with Spain’s Banco Santander and BBVA down 2.8% and 2.5%, respectively.
Across Europe, Britain’s FTSE 100, Germany’s DAX and France’s CAC40 fell 0.3% and 0.8%, respectively.
EYES ON ENGLAND
On the upside, Deutsche Boerse rose 4.5% following Wednesday’s news it was in advanced talks to buy peer NYSE Euronext.
Analysts and traders cautioned, however, that it was far from being a done deal just yet.
“Deutsche Boerse is certainly the big story of the day but there is still a chance that watchdogs will create hurdles for the deal to go ahead, so some investors are still cautious,” he said.
He added that the euro could also come under pressure, after talks yesterday that Axel Weber may not be entering the race to replace ECB President Jean-Claude Trichet.
“Many investors see Weber as capable of keeping inflation in the eurozone at bay, and are now questioning what would happen if he did not succeed Trichet,” Huber said.
The Bank of England is due to announce its decision on interest rates. With Britain’s economy contracting at the end of 2010, economists have stuck with the view that the BoE will keep interest rates on hold until much later in the year. A Reuters poll last week showed only 21 out of 67 analysts thought rates would go up before the fourth quarter.
“I think it is still too early for the Bank of England to hike its rates. England is facing the risk of stagflation and is in a volatile position, so today’s decision is certainly being awaited eagerly,” Huber said.
“There won’t be a rise today, but it will be interesting to see if there are more hawks,” Mike Lenhoff, strategist at Brewin Dolphin Securities, in London.
Later, investors’ attention will turn to US economic data, such as weekly jobless claims.