Bloomberg News

European Stocks Post Loss on Greece Austerity Measures, Euro-Area Growth

February 24, 2012

European stocks fell this week on investor concern about Greece’s ability to implement austerity measures needed for a second rescue package, and as the European Commission said the euro area’s economy will shrink this year.

National Bank of Greece SA paced declines in banks, sliding 18 percent. Commerzbank AG, the second-biggest German lender, dropped more than 6.6 percent after asking investors to swap hybrid capital instruments for new shares. TNT Express NV, the Dutch express-delivery service, rose 48 percent after rejecting a takeover offer from United Parcel Service Inc.

The Stoxx 600 (SXXP) slipped 0.4 percent to 264.77 this week after reaching 268.16 on Feb. 20, the gauge’s highest level since July 26. The benchmark measure has rallied 23 percent from its low on Sept. 22 and 8.3 percent this year as investors speculated euro- area policy makers will contain the sovereign-debt crisis.

“Investors have been hesitant as European politicians face parliamentary votes to pass the bailout for Greece which also faces another general election in April,” said Hans Peterson, the Global Head of Investment Strategy at SEB Private Banking in Stockholm. “Markets are in a waiting position.”

Greek Package

Euro-area finance ministers this week approved a 130 billion-euro aid package for Greece and persuaded investors to provide more debt relief to the nation.

German Chancellor Angela Merkel indicated she will maintain pressure on the Mediterranean country to meet debt-cutting pledges required for its second financial rescue, saying fiscal discipline is needed to hold the euro area together.

Still, the second rescue package may not be enough to end the debt crisis, Bank of England Deputy Governor Charlie Bean said on Feb. 22 in a speech in Glasgow, Scotland.

While the agreement “is certainly welcome, there still remains a possibility that events could unfold in a disorderly and damaging fashion at some stage in the future,” he said.

On Feb. 23, stocks slipped after the European Commission said the 17-nation euro economy will contract 0.3 percent in 2012, abandoning a November forecast for 0.5 percent growth, as the commission expects the economies of Italy and Spain to shrink 1.3 percent and 1 percent, respectively.

“Although growth has stalled, we are seeing signs of stabilization in the European economy,” European Union Economic and Monetary Commissioner Olli Rehn said in the introduction to the quarterly forecasts. “Economic sentiment is still at low levels, but stress in financial markets is easing.”

German Business Confidence

In Germany, the Munich-based Ifo institute said on Feb. 23 that its business climate index, based on a survey of 7,000 executives, climbed to 109.6 in February from 108.3 in January, the fourth straight gain and the highest since July.

European services and manufacturing output unexpectedly shrank in February as the euro-area economy struggled to rebound from a contraction in the fourth quarter. A euro-area composite index based on a survey of purchasing managers in both industries dropped to 49.7 from 50.4 in January, London-based Markit Economics said. Economists had forecast a reading of 50.5, according to the median of 16 estimates in a Bloomberg News survey.

A separate Purchasing Managers Index showed German services and manufacturing expansion unexpectedly slowed in February amid declining orders at factories in Europe’s largest economy.

U.S. Confidence

Confidence among U.S. consumers unexpectedly rose in February, the Thomson Reuters/University of Michigan final index of consumer sentiment showed. The measure increased to 75.3 from 75 in January beating the median estimate in a Bloomberg News survey of 73. The gauge averaged 89 in the five years before the 18-month recession that ended in June 2009.

Claims for jobless benefits in the U.S. held steady at 351,000 in the week ended Feb. 18, the lowest level in four years after an unexpected fall last week, Labor Department figures showed yesterday. Economists in a Bloomberg survey had projected an increase to 355,000.

Thirteen of the 19 industry groups in the Stoxx 600 (SXXP) declined this week, led by a gauge of travel and leisure companies, which fell 2.9 percent. Tour operators and airlines face rising fuel costs.

National benchmark indexes fell in nine of the 18 western- European markets. France’s CAC 40 (CAC) Index gained 0.8 percent. Germany’s DAX (DAX) Index rose 0.8 percent and the U.K.’s FTSE 100 (UKX) Index increased 0.5 percent.

Bank Decline

National Bank of Greece fell 18 percent to lead bank decliners as lenders including Royal Bank of Scotland Group Plc, Commerzbank and Dexia SA, which booked losses on their Greek government debt. Credit Agricole SA, France’s third- biggest bank, dropped 4.2 percent after reporting a quarterly loss following a 220 million-euro writedown on Greek debt.

Commerzbank fell 6.6 percent. Germany’s second-largest lender said it won’t pay a dividend for 2011 and will ask investors to swap hybrid capital instruments trading below face value for new shares, in a plan to boost its financial strength.

Hellenic Telecom, the biggest Greek phone company, lost 11 percent after saying it expects a similar decline in sales in 2012 as in 2011.

TNT Express, the Dutch parcel delivery company which was spun off from PostNL NV in May, rose 48 percent after rejecting a 4.89 billion-euro offer from Atlanta-based United Parcel Services Inc. on Feb. 17. PostNL advanced 41 percent.

Earnings

Of the 216 companies on the Stoxx 600 that have reported quarterly earnings so far, 108 have missed analyst estimates, while 92 have surpassed them, data compiled by Bloomberg show.

BASF AG advanced 2.7 percent. The world’s largest chemicals maker said fourth-quarter sales gained 10 percent to 18.07 billion euros ($24 billion), beating a 16.95 billion-euro estimate. Earnings before interest, taxes and items fell 15 percent to 1.51 billion euros, in line with analysts’ predictions. Investors will get a dividend of 2.50 euros, exceeding a Bloomberg estimate of 2.40 euros a share.

Vallourec SA, a French producer of steel pipes for the oil and gas industry, tumbled 6.5 percent. The company reported a fourth-quarter profit that beat analyst estimates and forecast a lower profit margin this year.

Airlines Lose

International Consolidated Airlines Group SA, the holding company of the British and the Spanish flag carriers, and Air France-KLM, Europe’s biggest airline, paced a selloff in European airlines, both fell 6.6 percent as crude oil futures traded at a nine-month high.

TUI AG slumped 7.2 percent in Frankfurt trading after Banco CAM sold 12.9 million shares of Europe’s largest travel company. Deutsche Lufthansa AG fell 3.7 percent after strikes at Frankfurt Airport forced the airline to cancel hundreds of flights.

Cove Energy Plc rose 58 percent. PTT Exploration & Production Pcl offered 1.1 billion pounds ($1.7 billion) to buy the African oil and gas explorer, trumping an earlier bid by Royal Dutch Shell Plc.

The proposed offer of 220 pence a share represents a premium of 30 percent to Cove’s average closing price in the past five days, Thailand’s only listed oil and gas explorer said today in a statement.

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

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


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