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Europe shares down, led by oil ahead ECB, U.S. data

Published 07/02/2009, 07:21 AM
Updated 07/02/2009, 07:24 AM
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* FTSEurofirst 300 down 1.0 pct; losses almost across board

* Food & beverages buck trend; Diageo top blue-chip gainer

* Markets waiting for U.S. jobs data, ECB

By Peter Starck

FRANKFURT, July 2 (Reuters) - European shares fell on a broad front by midday on Thursday, with food and beverage stocks the key exception, led by Diageo, as investors awaited U.S. jobs data and policy news from the European Central Bank.

The ECB's rate decision is due at 1145 GMT and bank President Jean-Claude Trichet's news conference starts at 1230 GMT. All but one of 82 economists polled by Reuters believe the ECB's key refi rate will stay at 1.0 percent.

By 1100 GMT, the pan-European FTSEurofirst 300 index was down 1.0 percent at 856.92 points, having risen 1.8 percent on Wednesday.

After a steep rise since early March, the European benchmark index has traded choppily in a narrow range since mid-June, as has the U.S. S&P 500 index.

"New impulses will come to the market once more evidence on the strength and durability of the economic recovery is visible, which may take some time before it will be convincing for investors," UniCredit said in an equity strategy note.

Hence the focus on the U.S. June non-farm payrolls and unemployment numbers due at 1230 GMT. According to a Reuters poll of economists, the non-farm payrolls are expected to show a loss of 363,000 jobs, while the unemployment rate is forecast to edge up to 9.6 percent from 9.4 percent in May.

"We are hopeful that we will see total non-farm payrolls fall by only around 300,000," ING said.

"This would take us back to the rate of declines seen pre the Lehman's collapse (in mid-September 2008), suggesting a return to more normal recession declines," ING said.

Goldman Sachs, which expects a weaker-than-consensus payrolls number of 425,000, said such an outcome might not necessarily hurt risky assets such as equities.

"The offsetting dynamic is that it should reinforce the view that (central bank policy interest) rates are likely to be on hold for an extended period," Goldman Sachs said.

"Relaxation on the rates front is likely to be broadly helpful to equities as long as the industrial news remains as positive as it has been," Goldman Sachs added.

With the jobs data out of the way before the long U.S. Independence Day weekend -- U.S. markets are closed on Friday -- the focus for equity investors is expected to shift to the upcoming corporate earnings season.

ALCOA FIRST OUT

"Even though 2009 earnings estimates still face some downside risks, we see much less need for revisions for 2010 as long as leading indicators continue to rise," UniCredit said.

"Against this backdrop, we expect 12-month forward consensus earnings estimates to stabilize soon, which will remove a major headwind for equities," UniCredit added.

Among bellwether names out early, aluminum producer Alcoa's results are due on July 8 followed by chipmaker Intel and diversified health products maker Johnson & Johnson, both on July 14.

"We are not reassured about the profit outlook," said Fortis Investments strategist Joost van Leenders.

"Although our longer-term bias towards equities may be slightly negative, we think it is too soon to move to an underweight," he said, noting, however, that Fortis Investments had cut its European allocation to "neutral" from "overweight".

Oil & gas took the most points of the FTSEurofirst 300 index by midday on Thursday. A bigger-than-expected rise in U.S. gasoline stocks and renewed global financial weakness concerns pushed the crude oil price below $68 a barrel.

Royal Dutch Shell shares fell 2.1 percent, Total was down 2 percent and ENI dipped 0.9 percent.

But Repsol shares rose 2.8 percent after the Spanish oil major said it had received several offers for a stake in its Argentine unit, YPF.

The DJ Stoxx European auto index was the top sectoral loser, down 2.8 percent, after Credit Suisse downgraded the European auto sector to "market weight" from "overweight", warning of increasing risk to automakers' cash flows in the first half of 2010.

Daimler fell 2.9 percent, Volkswagen lost 4.3 percent and Renault traded 3 percent lower.

In what looked like a partial rotation into steady-cashflow defensives, food & beverages, up 0.4 percent, was the only DJ Stoxx sector index in positive territory by midday.

Diageo, the world's biggest spirits group, which said on Wednesday it will cut jobs to cope with the downturn, was the top blue-chip gainer in Europe with a rise of 1.7 percent.

(Additional reporting by Joanne Frearson in London; editing by John Stonestreet)

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