Bloomberg News

European Stocks Decline as France, Germany Differ on ECB’s Role

November 18, 2011

Nov. 18 (Bloomberg) -- European stocks declined for a second day as a spat between Germany and France over the role of the region’s central bank in ending the debt crisis outweighed better-than-forecast U.S. economic data.

Kemira Oyj, the Finnish maker of water-treatment chemicals, sank 14 percent after cutting its forecasts. Chemring Group Plc, the U.K. maker of missile-avoidance gear, slumped the most in 14 years as profit missed estimates. SGL Carbon SE gained 1.2 percent as Bayerische Motoren Werke AG bought a 15 percent stake in the company.

The benchmark Stoxx Europe 600 Index fell 0.8 percent to 232.17 at the close of trading. The gauge has retreated 3.7 percent this week as Italian and Spanish borrowing costs surged and Germany rejected a French call to deploy the European Central Bank to the rescue of indebted nations.

“The ECB remains the only institution that can credibly counter a collective loss of confidence on such a scale,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mail. “Yet the longer its intervention in the bond markets of Italy and Spain remains limited and intermittent, the greater the risk that the crisis will escalate further.”

The Stoxx 600, which had earlier fallen as much as 1.2 percent, trimmed some of those losses after the index of U.S. leading indicators climbed more than forecast in October, signaling the world’s largest economy will keep growing in early 2012.

Crisis Backstop

German Chancellor Angela Merkel yesterday rejected French calls to deploy the ECB as a crisis backstop, defying global leaders and investors calling for more urgent action to halt the turmoil. Merkel listed using the ECB as lender of last resort alongside joint euro-area bonds and a “snappy debt cut” as proposals that won’t work.

Europe is running out of options to fix its debt crisis and it is now up to Italy and Greece to convince markets they can deliver the necessary austerity measures, Finnish Prime Minister Jyrki Katainen said.

Greek Prime Minister Lucas Papademos won approval for the final 2012 budget designed to regain the confidence of creditors and secure resumption of international financing. The budget forecasts Greece’s debt as a proportion of gross domestic product will fall to 145.5 percent in 2012 from 161.7 percent this year.

National benchmark indexes fell in 15 of the 18 western- European markets today, with Italy, Portugal and Spain the only gainers. U.K.’s FTSE 100 Index slid 1.1 percent, while France’s CAC 40 Index fell 0.4 percent. Germany’s DAX Index lost 0.9 percent.

Italian Vote

In Italy, Prime Minister Mario Monti won a final parliamentary confidence vote, granting full power to his new government after pledging to attack the euro-region’s second- biggest debt and spur growth.

“Investors want to see action from politicians and a plan over how to solve the European debt problem, not just firefighting,” said Lars Knudsen, who manages about $110 million at LGT Capital Management AG in Pfaeffikon, Switzerland. “It is as much a growth problem in Europe as a debt problem. Trading will continue to be influenced by news coming from politicians.”

Spanish and Italian bonds rose today after the ECB was said to buy the nation’s securities in its fifth consecutive day of sovereign-debt purchases.

U.S. Data

In the U.S., the Conference Board’s gauge of the outlook for the next three to six months climbed 0.9 percent after a 0.2 percent gain in September, Economists had forecast a 0.6 percent gain, according to the median estimate in a Bloomberg News survey.

Kemira slumped 14 percent to 8.40 euros, the biggest drop since January 2008. Annual revenue will probably reach the same level as last year and operating profit excluding one-time items will be at or slightly below the level in 2010, the Helsinki- based company said.

Chemring lost 13 percent to 421.6 pence, the largest decline since 1997. The company said full-year revenue was 745 million pounds ($1.18 billion), 5 percent less than management expectations, leaving operating profit below analyst estimates.

ARM Holdings Plc fell 3.9 percent to 498 pence. The maker of processor chips for Apple Inc.’s iPhone expects slower growth in research spending in 2012, the Wall Street Journal reported, citing an interview with President Tudor Brown.

Credit Suisse, KBC Groep

Credit Suisse Group AG retreated 3.4 percent to 20.46 Swiss francs and KBC Groep NV sank 7 percent to 10.89 euros.

SGL Carbon rose 1.2 percent to 43.68 euros after BMW, the world’s largest maker of luxury cars, bought a 15 percent stake in the maker of carbon products. BMW said it’s “satisfied” with its current holding, though can’t rule out additional share purchases in the future.

Deutsche Boerse AG, the operator of the Frankfurt exchange, added 2.8 percent to 42.52 euros. Deutsche Boerse and NYSE Euronext offered to sell overlapping single-equity derivatives businesses and give access to clearing services to soothe European regulators’ concerns over their proposed merger.

Holcim Ltd., the world’s second-biggest cement maker, jumped 2.2 percent to 51.30 francs after Paul Roger, an analyst at Exane BNP Paribas SA, raised the stock to “outperform” from “underperform.”

--With assistance from Sarah Jones in London. Editors: Srinivasan Sivabalan, Andrew Rummer

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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