European Markets Show Signs of Stress

By Josie Cox 

European markets edged lower Friday ahead of the results of sweeping EU bank stress tests, with traders' mood darkened by news that a case of Ebola was confirmed in New York City overnight.

In early trade, the Stoxx Europe 600 lost 0.3%, mirroring declines on most major country indexes, after a three-session winning streak.

On Sunday, scorecards for around 150 lenders are scheduled to be made public in a choreographed series of announcements in London, Frankfurt and other financial capitals across the continent, designed to shine light how strong balance sheets are and how capable banks are of surviving a deteriorating economic environment.

"Following our assessment of several banking systems in a series of reports published over the past year, we have identified vulnerabilities in some banks in Italy, Greece, Portugal and Germany, while most banks in Spain and France appear well positioned," credit analysts and economists at Barclays wrote in a note.

Earlier this week, Gildas Surry, an analyst at BNP Paribas SA, said he expected a dozen small banks, including Austria's Oesterreichische Volksbanken AG and Irish state-controlled lender Permanent TSB, to fail the tests. Both declined to comment.

Mr. Surry also said that as many as 19 other banks would technically fail the test but have raised enough capital since the end of 2013 to satisfy regulators and avoid further action.

Elsewhere on Friday, Ebola reappeared on the market's radar after a doctor who had recently returned to the U.S. from West Africa tested positive for the virus.

Overall, at least 9,936 people have now been infected with Ebola due to the West African outbreak, according to the World Health Organization.

Kit Juckes, a strategist at Société Générale in London said that while the news was "depressing", he didn't expect to see a major ripple effect, beyond a dip in U.S. equity futures.

Corporate earnings also provided little solace for markets Friday.

After the U.S. market close Thursday, retail giant Amazon.com Inc. reported a net loss of $437 million in the third quarter, worse than its year-earlier loss of $41 million.

In Europe on Friday, Germany's BASF SE lowered its outlook for 2015 and reported a 4.8% decline in third-quarter profit, hurt by the slowing global economy and weaker demand in Europe.

In the U.K. retail space, Tesco PLC's credit rating was cut to Baa 3 from Baa 2 by Moody's on Thursday after the market close, taking the company to the cusp of junk and sending its shares to the bottom of the FTSE index in early trading Friday.

In currency markets Friday, the euro was broadly flat against the U.S. dollar at $1.2648. Sterling was stable against a basket of currencies too, ahead of the publication of third quarter U.K. gross domestic product figures later in the morning.

The economy is expected to have expanded by 0.7%, which would be a slowdown from the previous quarter but "comfortably above trend" according to strategists at BNP Paribas.

In commodity markets, Brent crude was trading 0.7% lower on the day at $86.25 per barrel, while gold edged 0.3% higher to $1,232.70 a troy ounce.