EUROPE MARKETS: Europe Stocks Slip As ECB Moves Fall Short

By Barbara Kollmeyer, MarketWatch

MADRID (MarketWatch) -- European stock markets stayed choppy on Thursday as some analysts said a rate cut by the European Central Bank wasn't going far enough to help the struggling euro area. On a busy day for corporate earnings, Statoil SA and Sanofi SA dropped after results.

The Stoxx Europe 600 index pushed lower in afternoon action, down 0.4% to 6,427.02. European markets were shuttered on Wednesday for the May Day holiday. The index ended off 0.2% on Tuesday but closed out April with a 1% gain to 296.72.

Some pressure on the Stoxx 600 came from a few heavyweights who reported results. Statoil SA shares fell 3.6% after the Norwegian oil and gas company said first-quarter profit sank 58% on the year, missing forecasts, as production volumes and prices fell.

Sanofi SA (SNY) dropped 1.4% after the French drugmaker posted a 45% drop in first-quarter profit and a 5.3% sales fall, as the company is still suffering from lost patent protection. The pharmaceutical company said it expects a return to growth later in the year as that patent effect eases and new products come through the pipeline.

Europe stocks were having a somewhat turbulent day, with little initial reaction to news the ECB cut its benchmark rate 25 basis points to 0.5%. Stocks gained a little after the cut and upbeat U.S. data, but then dropped as ECB President Mario Draghi began speaking at a news conference.

The ECB also cut the interest rate on the marginal lending facility by 50 basis points to 1.00%, but analysts said this would merely encourage banks to lend and not impact the real economy.

Speaking to reporters, Draghi said the ECB's policy would remain accommodative, and it stands ready to act, but that there had been a prevailing consensus to limit the cut to 25 basis points. He said weak economic data extended into spring and labor-market conditions remain sluggish.

Stephen Pope, managing partner at Spotlight Ideas, said markets in Europe have dropped on disappointment the ECB hasn't done anything to "generate an expansionary monetary base.

"Rates should have been reduced far earlier and today, we should be looking at 25bps as the rate, not 50bps. Monetary growth, i.e. an explicit reflation of the balance sheet should be sanctioned," said Pope, but he said the Bundesbank would likely block that.

He said businesses were also going to get gloomier because of the ECB's lack of action. "That means that rather than enterprise enjoying a new sunny upland of enterprise friendly conditions the reality is that the engine of reform has been starved of fuel. Industry and hence shares are fearful that there will be limited to no supply side reform," Pope said.

The ECB also cut the interest rate on the marginal lending facility by 50 basis points to 1.00%, but analysts said this would merely encourage banks to lend and not impact the real economy.

"All things considered, the one thing to take from this is that the ECB has done nothing that is going to improve circumstances in the short term and least, although it does stand ready to act, if conditions warrant it," added Craig Erlam, market analyst at Alpari U.K. "Basically, it's business as usual in the euro zone."

Data ahead of that meeting showed euro-zone manufacturing activity contracted at a slower-than-forecast pace in April, with the manufacturing PMI falling slightly to 46.7 from 46.8 in March, according to Markit. German output contracted for the first time in 2013.

Analysts at Credit Suisse said in an earlier note that any rate cut would largely not affect European banks, "in part because we do not see it as sufficient to have an impact on the current negative macro background." However, they predicted that Spanish and Italian banks would be most negatively hit by a rate cut, seeing up to 6% of 2014 earnings potentially at risk.

Shares of Banco Santander SA fell more than 1% in Madrid, dragging the Spain IBEX 35 index south by 0.8% to 8,348.90. And in Italy, the FTSEMIB index fell 1.2% to 16,568.96,

Credit Suisse analysts said they remain cautious on those peripheral banks, but retain a market perform rating on higher-quality names that offer superior cash flow potential, including HSBC PLC (HBC) , BNP Paribas SA , Societe Generale SA and Julius Baer Gruppe AG

In Paris, the French CAC 40 fell 0.8% to 3,824.63 amid pressure from heavyweight Sanofi. Capgemini shares rose more than 5% after the computer services company said it was backing its 2013 outlook despite the "difficult economic climate."

The German DAX 30 index , a standout gainer earlier, gave up that lead to trade flat at 7,919.08 as heavyweights bank Commerzbank AG pared an earlier gain, up nearly 2%.

Shares of Infineon surged nearly 8% after the semiconductor maker said it expects higher revenues and margins for full-year 2013, lifted by market growth and recovering demand for autos.

The FTSE 100 index was off 0.5% to 6,417.92. Shares of BG Group PLC rose 2.8% after the oil and natural gas company reported a 0.8% fall in net profit for the first quarter, but said it was on track to meet project milestones for this year.

But there were plenty of stocks in the red, such as Shire PLC , which reported a 56% drop in operating income, reiterated its earnings guidance for the full year and said it's altering its business structure.

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