Bloomberg News

European Stocks Drop on Debt Fears, Slower China Growth

April 13, 2012

European stocks fell, for the longest streak of weekly losses since August, as concern resurfaced about the euro-area’s debt crisis and China’s economic growth slowed last quarter more than forecast.

UniCredit SpA and Banca Popolare di Milano Scarl (PMI) led European banks lower. Banco Santander SA, the biggest Spanish lender, fell 3.2 percent. Cap Gemini (CAP) SA dropped 5.1 percent. L’Oreal SA, the world’s largest cosmetics maker, rose 1.2 percent after first-quarter sales topped analysts’ estimates.

The Stoxx Europe 600 Index retreated 1.5 percent to 253.40 at the close of trading. The gauge has fallen for four straight weeks amid mounting concern that the region’s debt crisis is worsening and as a U.S. report showed employers added fewer jobs in March than forecast.

“The strong growth observed normally after the Chinese New Year appears not to have happened this year,” said Kai Fachinger, who manages about $750 million at SAM Sustainable Asset Management AG in Zurich. “We consider the economic situation in China as fragile, but expect political action in order to stimulate growth.”

The Stoxx 600 jumped 1.2 percent yesterday, its biggest advance in more than a week, after the Federal Reserve signaled interest rates will remain low to support economic growth.

Credit-Default Swaps

The cost of insuring against a Spanish default jumped to a record as Prime Minister Mariano Rajoy struggles to prevent the nation from becoming the fourth euro-region member to need a bailout.

Credit-default swaps on Spain rose 17 basis points to 498 as of 4 p.m. in London, surpassing the previous all-time high closing price of 493, according to CMA. The contracts are up from 431 at the start of the month and 380 at the end of 2011, signalling a deterioration in investor perceptions of credit quality.

Spanish banks’ borrowings from the European (SXXP) Central Bank jumped by almost 50 percent in March, reaching the most on record, the Bank of Spain said on its website today.

National benchmark indexes fell in every western-European market. France’s CAC 40 slid 2.5 percent, while the U.K.’s FTSE 100 decreased 1 percent and Germany’s DAX slipped 2.4 percent. Spain’s IBEX 35 dropped 3.6 percent to its lowest level since March 2009, while Italy’s FTSE MIB sank 3.4 percent. Greece was closed for a holiday.

ECB Purchasing

European Central Bank council member Klaas Knot said that policy makers are “very far” from reviving their program of purchasing government bonds. “The instrument hasn’t been used for some time” and “I hope we never have to use it again,” he said in Amsterdam today. He also said that another three-year loan probably “won’t be needed.”

Seventeen of 22 economists polled this week predicted the ECB will resume the Securities Markets Program (ECBCSMP), while only one forecast it will offer another batch of three-year cash. Nine said the central bank may consider shorter maturity loans of one or two years.

Growth in China’s economy, the world’s second biggest, slowed more than forecast last quarter to the least in almost three years.

Gross domestic product rose 8.1 percent from a year earlier following an 8.9 percent increase in the fourth quarter, the National Bureau of Statistics in Beijing said today. That was less than the 8.4 percent growth predicted in a Bloomberg News survey (CNGDPYOY). Analysts at Bank of America Corp., Nomura Holdings Inc. and IHS Global Insight said the first quarter may mark a trough.

“The market’s expectations for Chinese growth were not met, so they are slightly disappointed,” said Konstantin Giantiroglou, head of investment advisory at Neue Aargauer Bank AG in Brugg, Switzerland. “One should not forget that many investors see that it will allow the government to continue to ease financial conditions. The markets have enjoyed a good rebound in the last two sessions and are somewhat more vulnerable for a correction.”

IMF Scale-Down

International Monetary Fund Managing Director Christine Lagarde said she will scale down her request for $600 billion of additional resources as threats to the global economy diminish. The IMF is reassessing risks, “which will bring me to probably reassess a lower number of additional resources needed,” she said yesterday after European markets closed.

U.S. Confidence

Confidence among U.S. consumers cooled in April from a one year high as Americans’ assessment of their financial situation eased.

The Thomson Reuters/University of Michigan’s preliminary index of consumer sentiment dropped to 75.7 from 76.2 last month. The measure was projected to hold at 76.2, according to a median forecast in a Bloomberg News survey of economists.

Italian banks led a gauge of European lenders lower, with UniCredit (UCG), the nation’s biggest bank, dropping 6 percent to 3.03 euros, and Popolare di Milano retreating 8.2 percent to 34.6 euro cents. Intesa Sanpaolo SpA (ISP) sank 4.8 percent to 1.16 euros. BNP Paribas SA (BNP) slid 5.2 percent to 30.40 euros, while Banco Santander (SAN) declined 3.2 percent to 4.86 euros.

Cap Gemini, France’s biggest computer-services company, slipped 5.1 percent to 29.92 euros after peer Infosys Ltd. plunged the most in almost three years in Mumbai trading after forecasting sales lower than analysts had estimated.

STMicroelectronics NV (STM), Europe’s largest semiconductor maker, dropped 5.1 percent to 5.21 euros.

Sage Group Plc (SGE), the U.K.’s largest software maker, slipped 2.6 percent to 287.7 pence. Milan Radia, an analyst at Jefferies Group Inc., cut the stock to hold from buy.

Stada Arzneimittel (SAZ) lost 4.9 percent to 23.48 euros after JPMorgan cut the stock to neutral, the equivalent of hold, from overweight.

L’Oreal Gains

L’Oreal (OR) climbed 1.2 percent to 92.14 euros after it reported first-quarter sales that exceeded analysts’ estimates and said trends are favorable for all its brands.

Revenue climbed 9.4 percent to 5.64 billion euros ($7.4 billion), more than the average 5.53 billion-euro analyst estimate in a Bloomberg survey.

Aixtron SE (AIXA), which manufactures equipment for the semiconductor industry, rose 2.6 percent to 13.72 euros after Berenberg Bank AG said in a report that the lighting sector is attractive because of rising average selling prices and structural demand for energy-efficient products.

Stallergenes SA (GENP), the French pharmaceutical company that makes allergy treatments, increased 3.3 percent to 42.66 euros as first-quarter sales rose to 75.7 million euros from 70.9 million euros a year earlier.

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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