EUROPE MARKETS: European Stocks Waver After GDP Misses Forecast

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- European stock markets struggled for direction on Thursday after a disappointing reading on euro-zone economic growth stoked expectations of further monetary easing.

The Stoxx Europe 600 index slipped 0.1% to 341.24 at the latest, but swung between small gains and losses.

Among major movers, Cie. Financière Richemont SA rallied 5.1% after the luxury-goods company reported a 2.9% rise in annual profit.

Hennes & Mauritz AB put on 2.8% after the Swedish fashion retailer said its total sales in April, including VAT, increased by 17% in local currencies compared with the same month last year.

More broadly, European investors focused on the latest economic reports from the euro zone. Data from Eurostat showed the euro-zone economy expanded 0.2% in the first quarter, missing expectations of a 0.4% rise. Germany drove most of the improvement, with gross domestic product there rising 0.8% in the first three months of the year. That figure marked the most rapid expansion since the first quarter of 2011. In the fourth quarter of 2013, the German economy grew 0.4%.

France and Italy, however, showed weakness, with the French economy unexpectedly stagnating in the three-month period while Italian GDP contracted 0.1%. Portugal, Finland, the Netherlands and Cyprus further experienced negative growth rates.

Chris Williamson, chief economist at Markit, said in a note that although the euro zone now has managed to expand for four straight quarters, the pace is still lackluster.

"The data therefore add to the likelihood of the [European Central Bank] taking action at its June meeting to inject more stimulus into the economy," he said.

The increased hopes of monetary stimulus, however, wasn't enough to send European benchmarks higher on Thursday. France's CAC 40 index fell 0.2% to 4,490.35, while Germany's DAX 30 index was flat at 9,754.58. The U.K.'s FTSE 100 index rose slightly to 6,880.67.

Atif Latif, director of trading at Guardian Stockbrokers, said in emailed comments that the expectations of more easing from the ECB had to some extent already been priced in.

ECB President Mario Draghi said last week the central bank is "comfortable with acting" at the June meeting, with the caveat that policy makers want to see the June update of staff economic forecasts.

In the same vein, European Central Bank Vice President Vitor Constancio said Thursday that the central bank is determined to act "swiftly" if needed to battle the low inflation levels, and didn't rule out further monetary easing. The final reading for euro-zone April inflation confirmed that consumer prices rose 0.7% last month.

Additionally, an ECB survey of private forecasters showed that inflation in the euro zone is likely to remain further below the central bank's target than initially projected, ramping up pressure on the central bank to act.

Movers

Among major movers in Europe on Thursday, London Stock Exchange Group PLC advanced 2.6% after the company lifted its total dividend payment by 4.4%, and said that it has identified additional cost savings in relation to the integration of LCH.Clearnet.

Carphone Warehouse Group PLC lost 4% after the cellphone retailer announced an all-share merger with Dixons Retail PLC worth 3 billion pounds ($5 billion). Dixons Retail shares dropped 5.7%.

Also in London, shares of GlaxoSmithKline PLC (GSK) picked up 1.1% after Morgan Stanley started coverage of the drug maker with an overweight rating.

Shares of Vodafone Group PLC (VOD) gave up 2.5% after Goldman Sachs removed the telecom firm from its pan-Europe buy list and cut the rating to neutral from buy.

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