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ISEQ lower as big 4 meet

Friday, June 22 09:36:21

The ISEQ is lower at 3,040, down 20 today. Davy Stockbrokers have some pertinent comments:

European stock indices closed down yesterday (June 21st), erasing Wednesday's small gains. The decision by the Federal Reserve not to expand its quantitative easing programme hit sentiment. A poor Chinese PMI survey added to the gloom in early trading, indicating that the manufacturing sector contracted for an eighth consecutive month, with the release of euro area PMI surveys indicating that the economy remains mired in recession.

Overnight, the S andP 500 closed down 2.2pc as markets digested the news of Moody's downgrades to 15 banks with global operations. Stock index futures for European indices suggest further falls in the region of 0.5-1pc when markets open this morning. Bond markets will also respond to the newly published stress tests, indicating that Spanish banks require E16-62bn of additional capital, well below the E100bn earmarked by EU finance ministers.

Yesterday's PMI surveys indicated that the euro area economy continues to contract. Although the composite reading was flat at 46 on the month, it remains well below the 50 no change level. Overall, the PMI surveys have been weaker in Q2 than in the final quarter of 2011. So they suggest euro area GDP should contract at a sharper pace than the 0.3pc quarter-on-quarter decline in Q4 2011. Unless there is a sharp improvement from July, they imply that Q3 GDP is likely to contract too.

However, a rebound in the PMI surveys of economic activity hardly seems likely, with measures of household and business confidence exhibiting a renewed deterioration in recent months.

Yesterday's European Commission survey of consumer confidence in June showed a small decline and remains well below levels in 2011. Today's key macroeconomic data release is the German IFO Business Climate indicator for June, expected to fall to its weakest level since March 2010.

So the IFO survey should add to the evidence that the euro area recession is finally hurting the relatively robust German economy.

Earlier this week, the German ZEW investor sentiment survey fell into negative territory for the first time since January. This means that on balance German investors now expect economic conditions to deteriorate according to Davy Stockbrokers.