European Stocks Fall as Banks Decline -- Update

By Jon Sindreu and Kenan Machado Features Dow Jones Newswires

Stock markets around the world moved lower Tuesday after a long holiday weekend, with banks leading the way.

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The Stoxx Europe 600 was down 0.4% in the European morning. The banking sector was down almost 1.2%, a sign of higher risk aversion among investors.

Futures pointed to a 0.1% opening loss for the S&P 500.

In the U.K., the FTSE 100 fell 0.5%, dragged down by a 3% drop in shares of International Consolidated Airlines Group SA, owner of British Airways and Iberia, after around 75,000 passengers had their flights canceled during the long weekend because of a computer crash.

Meanwhile, prospects for political turmoil in the eurozone have increased. Elections in Italy this year are now more likely after comments by former Italian Prime Minister Matteo Renzi, analysts said.

In Asia, the Nikkei Stock Average closed broadly flat, having been down as much as 0.6% during the day, as the yen strengthened against the U.S. dollar. The South Korean Kospi was down 0.4% and Australia's S&P/ASX 200 gained 0.2%.

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Although most traders came back from holidays Tuesday, markets in mainland China, Hong Kong and Taiwan remained shut for the Dragon Boat Festival.

After a positive first quarter for corporate earnings, investors are now trying to gauge how long the current environment of market optimism and low volatility can last. Since the start of the year, funds have started moving more of their money into Europe and emerging markets, as data shows the U.S. is no longer alone in powering global economic growth.

But some money managers are concerned that a few sectors of the U.S. economy, such as the auto industry, are flashing warning lights after years of good performance.

"Clearly we are late in the economic cycle," said Ryan Detrick, senior market strategist for LPL Financial, though he added that "we've got another year or two of good potential economic growth" in the U.S.

Figures on U.S. consumer confidence and personal income and spending are due this week, as is the closely watched monthly jobs report. Meanwhile, eurozone inflation and economic confidence data will shed further light on the strength of the Continent's recovery.

On Tuesday, figures showed the French economy grew at a faster rate than previously estimated during the first quarter of the year.

In Italy, agreement across parties about how to reform the country's voting system "suggests that they may be willing to press President Sergio Mattarella to dissolve the parliament before the summer break," said Fabio Fois, analyst at British bank Barclays PLC.

Policy makers have underscored that recent rises in inflation across the globe have been largely driven by a recovery in commodity prices, rather than consumers depleting shelves. Both the Federal Reserve and the European Central Bank have signaled that monetary policy will remain loose for long, which provides a boost for both stocks and bonds.

Indeed, sovereign bond yields, which move opposite to prices, remain very low across developed nations, and edged lower Tuesday. In the U.K., where rates are expected to stay at record lows as the country starts a yearslong divorce from the European Union, 10-year gilt yields fell to 1.006%, the lowest since last October.

Investors have long speculated that ECB officials would use their June policy meeting to give indications of how and when the central bank's EUR60 billion ($67 billion) monthly bond purchases are likely to be tapered, but ECB President Mario Draghi said Monday that "an extraordinary amount" of monetary firepower remains necessary.

"Next week's ECB meeting will in our view only deliver new words but no action," said Carsten Brzeski, economist at Dutch bank ING Groep NV. "We expect the ECB to announce first subtle changes to its risk assessment and forward guidance."

The euro fell 0.4% against the U.S. dollar after Mr. Draghi's announcement, but later regained some ground to trade at $1.1143, down 0.2% compared with Monday's close. Meanwhile, the yen was up 0.4% against the U.S. dollar and 0.5% against the euro, amid a string of strong data releases in Japan on Tuesday.

Yoko Kubota contributed to this article.

Write to Jon Sindreu at jon.sindreu@wsj.com and Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

May 30, 2017 06:02 ET (10:02 GMT)