EUROPE MARKETS: European Stocks See Little Benefit From ECB Moves

By Barbara Kollmeyer, MarketWatch

MADRID (MarketWatch) -- European stock markets were choppy, finishing the day largely were they started as some analysts expressed disappointment by earlier rate cuts from the European Central Bank. On a busy day for corporate earnings, heavyweight Statoil SA was among those dropping after results.

The Stoxx Europe 600 index rose 0.1% to 6,454.01. European markets were closed 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.

Europe stocks saw little initial reaction to news the ECB cut its benchmark rate 25 basis points to 0.5%. Stocks rose after upbeat U.S. data, but then dropped as ECB President Mario Draghi began speaking at a news conference. Stocks recovered some ground in step with U.S. market gains.

The main criticism of the day was that the moves were not going to go far enough for the depressed region.

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 25 basis points as the rate, not 50 basis points. 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, and "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, with UniCredit SpA dropping nearly 2%.

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 , Société Générale SA and Julius Baer Gruppe AG

In Paris, the French CAC 40 fell 0.2% to 3,848.60. Capgemini shares rose more than 6% after the computer services company said it was backing its 2013 outlook despite the "difficult economic climate." But heavyweight Total SA (TOT) dropped 1%

The German DAX 30 index , rose 0.3% to 7,937.96, with heavyweight bank Commerzbank AG up 3% and shares of Infineon surging 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 flat at 6,453.04. Shares of BG Group PLC rose 3.8% 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 (SHPGY), which reported a 56% drop in operating income, reiterated its earnings guidance for the full year and said it's altering its business structure. Shares sank nearly 7%.

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