Bloomberg News

European Stocks Retreat as Merkel, Sarkozy Meet on Euro Rules

January 09, 2012

Jan. 9 (Bloomberg) -- European stocks fell, trimming three weeks of gains for the Stoxx Europe 600 Index, as a summit between German Chancellor Angela Merkel and French President Nicolas Sarkozy failed to assuage concern over the debt crisis.

UniCredit SpA tumbled as rights to buy the bank’s shares slumped in their first day of trading in Milan. GlaxoSmithKline Plc fell 4.1 percent after saying its experimental respiratory drug Relovair failed to prove its superiority to an existing medicine in a late-stage study. Nokia Oyj fell 2.8 percent as supplier RF Micro Devices Inc. reported preliminary quarterly revenue that trailed its earlier forecast.

The Stoxx 600 slipped 0.5 percent to 246.42 at the close of trading in London, having swung between gains and losses more than 10 times today. The gauge gained 1.2 percent last week as economic reports from around the world added to optimism that the global economy can weather the fallout from the euro area’s sovereign-debt crisis.

“We believe that a combination of weaker earnings numbers, a further deterioration in euro-zone growth in the first quarter, and further political tensions are likely to push equities down before they recover more sustainably, most likely later in the first half,” a team of strategists at Goldman Sachs Group Inc., led by Peter Oppenheimer in London, wrote in a report dated Jan. 8. “There remain several issues in Europe that are likely to put upward pressure on sovereign yields over the next couple of months that are also likely to weigh on equities.”

Merkel-Sarkozy Meeting

Merkel and Sarkozy met for the first time in 2012 in Berlin today to flesh out a new rulebook for fiscal discipline negotiated at a Dec. 9 summit that seeks to create a “fiscal compact” for the 17-member euro area.

The two leaders said they may complete their new budget rules by Jan. 30, one month ahead of schedule.

Italian Prime Minister Mario Monti will also visit Berlin this week. Sarkozy and Merkel will both travel to Rome on Jan. 20 for negotiations with the Italian government before the next European Union summit meeting in Brussels on Jan. 30.

Germany sold six-month treasury bills at a negative yield for the first time amid demand for the debt securities of Europe’s biggest economy as a haven from the sovereign-debt crisis roiling the region.

The European Central Bank said overnight deposits from commercial lenders rose to a record 463.6 billion euros ($591 billion) on Jan. 6, up from the previous record of 455.3 billion euros set a day earlier.

German Industrial Production

A report today showed that German industrial output declined in November. Production fell 0.6 percent from October, when it rose 0.8 percent, the Economy Ministry in Berlin said today. Economists had forecast a 0.5 percent drop, according to the median of 30 estimates in a Bloomberg News survey.

“The outlook for 2012 is highly conditional,” said Frederic Buzare, a fund manager at Dexia Asset Management in Brussels. “If euro-zone members act in unison, demonstrate a shared vision and are specific about the details, this may put a floor underneath the sovereign crisis. It is now likely that, although 2012 will be lost in terms of growth, at least financial stability could be safeguarded, and that’s the bottom line.”

European Stock Markets

National benchmark indexes declined in 14 of the 18 western-European markets. Germany’s DAX Index and the U.K.’s FTSE 100 Index slipped 0.7 percent. France’s CAC 40 Index decreased 0.3 percent.

Alcoa Inc., the largest U.S. aluminum producer, plans to release results after markets close today, the first company in the Dow Jones Industrial Average to report earnings from the final quarter of 2011. Investors will watch to see how the difference in economic growth in the U.S., Europe and Asia affects companies’ earnings.

UniCredit rights, which each entitle holders to buy two new shares in Italy’s largest bank for 1.943 euros, traded at 47 euro cents, 65 percent lower than their indicative price at the end of last week. The shares slumped 13 percent to 2.29 euros and were suspended for volatility at least twice. Banca Monte dei Paschi di Siena SpA, Italy’s third-largest bank, tumbled 14 percent to 19.7 euro cents, its biggest drop since 1999.

Glaxo plunged 4.1 percent to 1,435 pence, its biggest drop since January 2009. The drugmaker found “no statistical difference” between Relovair and its Seretide treatment, known as Advair in the U.S., in a 12-week study, it said in a statement today. That may limit the drug’s commercial potential, analysts at Credit Suisse Group AG said in a note to investors. Glaxo expects Relovair to succeed Advair, its best-selling drug, in accounting for about a fifth of global sales.

Nokia, Temenos Slide

Nokia dropped 2.8 percent to 4.04 euros. RF Micro Devices, Nokia’s most important power-amplifier supplier, said sales for the December quarter probably fell 19 percent to about $225 million, the fourth straight quarterly decline. That compared with a previous company forecast of $250 million.

Temenos Group AG sank 7 percent to 14.60 Swiss francs after saying Mark Austen resigned from his position on the company’s board of directors with immediate effect. The company had previously announced it would not seek Austen’s re-election at its next shareholder meeting, Temenos said yesterday.

BMW, Persimmon Rise

Bayerische Motoren Werke AG, the world’s biggest maker of luxury cars, gained 2.3 percent to 56.84 euros. The Munich-based company said sales, including its Mini small-car brand and Rolls-Royce super-luxury marque, rose 14 percent to 1.67 million in 2011.

Persimmon Plc advanced 5.3 percent to 506.5 pence, its eighth day of gains for the longest winning streak since 2004. The U.K.’s second-largest homebuilder by market value said 2011 results will be toward the top end of analyst estimates. The company said its underlying operating margin will approach 10 percent. Persimmon also forecast a 50 percent increase in pretax profit.

Rentokil Initial Plc added 2.2 percent to 66 pence, its highest price in more than a month, after Credit Suisse raised the world’s biggest pest-control company to “outperform” from “neutral.”

--With assistance from Alexis Xydias and Sarah Jones in London. Editors: Will Hadfield, Srinivasan Sivabalan

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

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


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