EUROPE MARKETS: Europe Stocks Drop After Abe Speech, Tesco Off

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets traded mostly in negative territory on Wednesday, taking a cue from a weak trading session in Asia where Japanese stocks slumped after a speech from Prime Minister Shinzo Abe fell short of expectations.

The Stoxx Europe 600 index dropped 0.2% to 298.95, after gaining 0.3% on Tuesday.

Shares of Tesco PLC (TSCDY) gave up 3.7%, after the supermarket retailer said comparable sales for the fiscal first quarter dropped in the U.K.

Another supermarket chain, Carrefour SA slumped 5.3% in Paris after HSBC cut the French firm to underweight from neutral.

On a more upbeat note, shares of Elekta AB jumped 6.3%, after the medical-tech firm said it expects sales to grow more than 10% in the 2014 fiscal year. It also reported a 16% rise in sales for the 2013 full fiscal year.

Investors in Europe also looked east, where Japan's prime minister delivered his long-awaited speech on how to boost the country's economy, but failed to meet expectations. The growth strategy revealed plans to attract foreign funds and boost investment and wages, but dodged some of the tough decisions needed to fix the economy, analysts pointed out.

The Nikkei Stock Average ended 3.8% lower.

Later in the day, focus will turn to the U.S. where the ADP Employment Survey is out at 1:15 p.m. London time, or 8:15 a.m Eastern. Analysts will be looking for clues on the recovery in the U.S. labor market ahead of the much anticipated nonfarm-payroll report and unemployment rate out on Friday, which could influence the Federal Reserve's stance on its aggressive easing program.

Fed Chairman Ben Bernanke said last month that the central bank could begin to scale back its $85-billion-a-month in coming months, if data continue to improve. In that light, a positive reading on the labor market could actually trigger a selloff in the stock market, as it may lead to a reduction in the Fed's liquidity injections.

"Traders are now cutting risk exposure ahead of U.S. jobs data, which will undoubtedly be one of the strongest gauges of upcoming Fed policy. Second-guessing the Fed's next move is fast becoming the markets' latest hobby, so expect profit-taking before today's U.S. ADP report," said Ishaq Siddiqi, market strategist at ETX Capital, in a note.

In the U.S., stock futures pointed to soft open on Wall Street.

On the data front, euro-zone retail sales painted a bleak picture of the spending patterns in the region. Retail sales dropped 0.5% in April, worse than the decline of 0.2% registered in March. The food, drinks and tobacco sector fell 2%, while nonfood rose 0.6%.

In the U.K., the services purchasing managers' index rose to 54.9 in May from 52.9 in April, signaling the fastest pace of growth since March 2012.

U.K.'s FTSE 100 index , however, slid 0.7% to 6,514.14, weighed by Tesco and banks.

France's CAC 40 index dropped 0.5% to 3,907.32, and Germany's DAX 30 index fell 0.2% to 8,275.73.

Outside the major indexes, Royal Ahold NV dropped 1.7% in Amsterdam, after J.P. Morgan Cazenove cut the food retailer to neutral from overweight.

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