German stocks declined after European Central Bank President Mario Draghi said risks to the euro area economy are on the downside, offsetting optimism about interest rate cuts in Europe and China.
Merck KgaA (MRK) dropped 2.3 percent after its Erbitux cancer treatment failed to help patients with advanced stomach tumors. Commerzbank AG (CBK) led financial shares lower as Spanish and Italian bonds dropped. Volkswagen AG (VOW) gained 5.1 percent after reaching an agreement with Germany’s tax authorities to buy a 50.1 percent stake in Porsche SE.
The DAX Index (DAX) declined 0.5 percent to 6,535.56 at the close in Frankfurt. The gauge has still climbed 9.5 percent from its 2012 low on June 5 as Greece formed a new government and European leaders agreed to address flaws in their bailout programs. The broader HDAX Index also fell 0.5 percent today.
“The ECB cutting the lending rate to zero is good news in the short term, but shows the bank is running out of weapons to fight the crisis,” said Witold Bahrke, a senior strategist at PFA Pension A/S in Copenhagen, where he helps oversee $55 billion. “Monetary policy is no longer the game changer we need. Politicians in China, the U.S. and Europe must address fiscal policy imbalances to get economies back on track.”
The ECB lowered its benchmark interest rate below 1 percent for the first time, cutting it by 25 basis points to a record low of 0.75 percent, and reduced its deposit rate to zero, matching the mean forecast of a Bloomberg News survey of economists.
Some “downside risks to the euro-area economic outlook have materialized,” Draghi said at a press conference in Frankfurt today. “Economic growth in the euro area continues to remain weak with heightened uncertainty weighing on both confidence and sentiment.”
China cut interest rates and allowed banks to offer bigger discounts on their lending costs, stepping up efforts to reverse a slowdown in its economy. China’s one-year lending rate will fall by 31 basis points and the one-year deposit rate will drop by 25 basis points effective tomorrow, the People’s Bank of China said.
The Bank of England restarted bond purchases two months after halting its expansion of stimulus as the deteriorating outlook spurred policy makers to ramp up efforts to kick start a recovery.
The Monetary Policy Committee led by Governor Mervyn King raised its asset-purchase target by 50 billion pounds ($78 billion) to 375 billion pounds and said it expects the purchases to take four months to complete. Thirty of 41 economists had forecast the move in a Bloomberg News survey.
Policy makers also left their benchmark rate at a record low of 0.5 percent today, a move forecast by all but one of 50 economists in a Bloomberg survey.
Factory orders in Germany unexpectedly rebounded in May, driven by demand from the euro region.
Orders, adjusted for seasonal swings and inflation, rose 0.6 percent from April, when they declined a revised 1.4 percent, the Economy Ministry in Berlin said today. Economists forecast orders would hold steady in May, according to the median of 36 estimates in a Bloomberg News survey.
Companies in the U.S. added 176,000 workers in June, according to figures from Roseland, New Jersey-based ADP Employer Services.
The median forecast of economists surveyed by Bloomberg News called for a 100,000 advance. Estimates of the 35 economists ranged from gains of 50,000 to 150,000.
Merck, the Darmstadt, Germany-based drugmaker, slid 2.3 percent to 78.14 euros. Its Erbitux cancer treatment failed to help patients with advanced stomach tumors in a late-stage clinical trial, as the drug, combined with two other medicines, didn’t extend the length of time that patients lived without their disease, the company said in a statement today.
Deutsche Bank AG (DBK) and Commerzbank, the biggest German lenders, dropped 1.6 percent to 28.73 euros and 2.4 percent to 1.29 euros, respectively. A gauge of banks made the biggest contribution to the Stoxx 600 Index’s (SXXP) drop today as Spanish and Italian bonds slid after the ECB refrained from announcing more measures to cap borrowing costs in so-called peripheral nations.
Daimler AG, the maker of Mercedes luxury coupes and trucks, fell 1.3 percent to 36.55 euros.
VW climbed 5 percent to 134.50 euros after Europe’s largest carmaker agreed to buy the controlling stake in Porsche’s automotive business for 4.46 billion euros, ending a seven-year takeover saga that has divided two of Germany’s most powerful families. Porsche slid 1.2 percent to 41.46 euros.
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