European shares head for first weekly drop since April

Concerns about Iraq and Ukraine and subdued economic data left European shares facing their first week of losses since early April on Friday and nudged gold towards a two-month high.

Other safe-haven assets including the yen, Swiss franc and German government bonds were also in demand as investors took a step back from riskier bets.

Gold climbed back towards $1,325 an ounce and looked set for its fourth straight weekly gain, as the fallout from Thursday’s weak U.S. consumer spending figures also hurt the dollar.

The situation in Iraq was tense overnight after at least one armed forces helicopter crashed under fire from insurgents, while Russia warned of “grave consequences” after Ukraine signed a trade and political agreement with the European Union.

But while the geopolitical tensions weighed, there was the comfort that the disappointing U.S. data could keep interest rates at record lows for a longer period of time – meaning markets struggled for clarity.

Stock markets in London, Frankfurt and Paris rose slightly in early trading though the recent selloff was set to bring a ten-week run of
unbroken gains to an end.

“The advance (in stock markets) has stopped for a while but there has been no five or ten percent correction,” said Alvin Tan, a strategist at
Societe Generale. “And that is a result of the environment of very low volatility we have at the moment.”

Investors were also digesting a tick down in euro zone business and consumer confidence data and awaiting German inflation numbers, both
important for the European Central Bank’s future policy.

Oil, usually the most sensitive to Middle East unrest, was on course for its biggest weekly drop since January due to the fact the fighting in Iraq had not yet spread to the south where most oil is produced.

At $113 a barrel, prices have dropped nearly $3 from a nine-month high of $115.71 hit on June 19.

“The exaggerated fear premium is being priced out,” said Carsten Fritsch, a senior oil and commodities analyst at Commerzbank in Frankfurt.