European Stocks Sag, Facing Stagnant GDP and Deflation Risk

LONDON (The Deal) -- Europe’s economies are sleepwalking toward recession and deflation, with eurozone gross domestic product stagnant and inflation at a troublingly low level. But markets have chosen to interpret the latest figures as a sign that interest rates will remain low for much longer than previously thought, keeping this morning’s losses to a moderate level.

Frankfurt's DAX is down just 0.36% at 9,165, despite the fact that German GDP fell 0.2% in the second quarter. Paris's CAC 40 is down 0.45% at 4,176, after the government halved its growth forecast for the year to 0.5%, saying growth was zero in the second quarter. It also said it would miss its budget deficit target of 3.8%.

Meanwhile, in the U.K. which is outside the eurozone, the FTSE 100 was in positive territory, up 0.14% at 6,666. The U.K.’s economy has been doing unexpectedly well this year, although exports to the eurozone are inevitably affected by the slowdown across the English Channel.

In London, Lloyds Banking (LYG) slipped 0.16% to 73.56 pence on reports that the government has now dropped plans for a sale of part of its stake in the bank to retail investors this year, and probably until after next May’s general election. That doesn’t mean there won’t be placements with retail investors, but it does show the bank’s share has not made the recovery that would justify the razzamatazz needed for a successful sale to the public.

Top of the London risers was travel company TUI (TUIVY), up 2.07% at 369.4 pence after its German parent, also called TUI, said plans were on track for a full merger between the two. The German company didn’t give any detail, as no merger proposal has been formally submitted to the U.K. Takeover Panel.

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