LONDON (MarketWatch) — Banks and oil firms drove European stock markets into negative territory on Monday, as Germany’s Bundesbank and the European Central Bank undercut hopes the ECB would soon undertake an aggressive program of government bond purchases.
The Stoxx Europe 600 index (SXXP) moved 0.5% lower to close at 271.50, after closing last week up 1.1%, marking the 11th straight week of gains. U.S. stocks were lower on Wall Street.
“After the recent rally we are now coming to a state where there's a little bit of uncertainty about whether to follow through with the rally,” said Predrag Dukic, senior equity sales trader at CM Capital Markets in Madrid.
“We’ve seen some profit-taking this morning and people are waiting to see what happens next.”
Oil firms contributed to the negative sentiment, as oil prices inched lower. BP PLC (BP.) BP, +0.18% fell 0.5%, BG Group PLC (BG.) slipped 1% and Repsol SA (REP) lost 4.4%.
Pointing in the other direction, Heineken NV (HEIA) rose 1.6% after the brewer on Saturday said it raised its offer to buy the entire stake of its joint-venture partner Fraser & Neave Ltd. in Asia Pacific Breweries Ltd. See: Heineken raises bid for Asia Pacific Breweries
Greece meetings in focus
For the broader European markets, stocks were higher in midmorning action, after German magazine Der Spiegel reported over the weekend that the ECB was considering a program of aggressive government bond buys when yields moved above a certain level versus German bunds.
“Such a promise could be an important step toward regaining investor confidence, but the question is whether it can be seen as compatible with the EU Treaty’s prohibition of monetary financing of government debt,” analysts at Danske Bank said in a note. Read: Yield caps would give ECB powerful weapon.
Germany’s Bundesbank, however, killed stock gains and dented hopes of unlimited bond purchases as it reiterated its opposition to the ECB buying more government debt. In its monthly report it warned that any move to share “solvency risks” should be decided by governments. See: Bundesbank reiterates opposition to ECB bond buys
A spokesperson from ECB further called the Der Spiegel report misleading.
“Central-bank action is not going to happen yet. Policy makers are away on holiday and Germany has reiterated that it sees significant risk in the bond-buying plan,” Dukic from CM Capital Markets said. “The autumn is more ripe for the ECB and policy makers to step in with a more permanent solution. But markets are already pricing that in.”
Solid gains for Spanish and Italian stocks were erased following the Bundesbank comments. Spain’s IBEX 35 index (IBEX) slid 1.2% to 7,469.60, while Italy’s FTSE MIB index (FTSEMIB) gave up 1% to 14,971.88.
Borrowing costs declined, meanwhile, with yields on 10-year Spanish government bonds (10YR_ESP) falling 18 basis points to 6.26% according to electronic trading platform Tradeweb. See: Spain, Italy narrow yield spreads versus Germany
In addition, investors looked toward a week of meetings about the euro-zone’s debt problems, with attention returning to Greece.
Greek Prime Minister Antonis Samaras is set to meet German Chancellor Angela Merkel in Berlin on Friday and will reportedly sound her out on a call to stretch the implementation of new austerity measures to four years rather than the two years agreed as part of the country’s second bailout.
The Greek prime minister will visit French President François Hollande on Saturday. See: Get ready for more ‘Grexit’ speculation
Banks were among notable decliners on stock markets.
In Germany, Deutsche Bank AG (DBK) tripped 1.4% after weekend reports that U.S. prosecutors are investigating the bank over money-laundering allegations in Iran and Sudan.
A representative from Deutsche Bank declined to comment on the investigation, but said the bank decided in 2007 to “not engage in new business with counterparties in countries such as Iran, Syria, Sudan and North Korea and to exit existing business.”
Commerzbank AG (CBK) fell 2%.
The DAX 30 index (DAX)(DAX)fell 0.1% to 7,033.68.
In the U.K., HSBC Holdings PLC (HSBA) HBC, +1.40% slipped 1.2%, while Standard Chartered PLC (STAN) nudged 1.4% lower.
The FTSE 100 index (UKX) closed 0.5% lower at 5,824.37. Read more about London markets
AstraZeneca PLC (AZN) AZN, +0.14% lost 0.5% after J.P. Morgan Cazenove downgraded the drug maker to underweight from neutral.
Outside the main index, platinum miner Lonmin PLC (LMI) dropped 4.6% following violence and shootings at one of the firm’s mines in South Africa. In addition, Deutsche Bank cut the stock to sell from hold after the incidents. See: South Africa to probe killing of mine workers and Lonmin says 27% of workers back at Marikana mine.
Among French stocks, car makers were among the biggest decliners. Peugeot SA (UG) fell 2.1% and Renault SA (RNO) gave up 1.9%.
The CAC 40 index (PX1) fell 0.2% to 3,480.58. Banks also added pressure, with Credit Agricole SA (ACA) off 4.5% and Société Générale SA (GLE) down 3.6%.