Bloomberg News

European Stocks Drop as U.K. GDP Shrinks

July 25, 2012

European (SXXP) stocks retreated for a fourth day as reports showed the U.K. economy shrank the most in three years last quarter and U.S. new-house sales unexpectedly dropped last month.

BT Group Plc (BT/A) slid 3.4 percent after the U.K.’s largest fixed-line phone company posted falling sales. Drax Group Plc (DRX) tumbled 15 percent after the U.K. government revised its subsidies for renewable energy. Daimler AG (DAI) jumped 4.1 percent after forecasting that operating profit will not drop in 2012.

The Stoxx Europe 600 Index slid 0.1 percent to 250.26 at 4:30 p.m. in London. The benchmark measure has slipped 4.4 percent over the last four days on concern that Greece will default and more Spanish regions will follow Valencia in seeking a bailout from the central government.

“The U.K. gross domestic product number was a bit of a startler,” said Mike Lenhoff, chief strategist at Brewin Dolphin Securities Ltd. in London. “After three quarters of negative growth, the U.K.’s now firmly in the European camp of stagnation. Decent earnings results, particularly from the big international companies, are providing some support.”

In the U.K., the economy shrank the most since 2009 in the second quarter, deepening the country’s double-dip recession. Gross domestic product fell 0.7 percent from the first quarter, the Office for National Statistics said today. Economists had forecast a 0.2 percent drop, according to the median of 36 estimates in a Bloomberg News survey.

Business Confidence

In Germany, a gauge of business confidence slipped in July to the lowest level since March 2010. The Ifo institute’s business climate index, based on a survey of 7,000 executives, dropped to 103.3 from 105.2 in June.

Greece’s Prime Minister, Antonis Samaras, will meet with representatives of the European Commission, the European Central Bank and the International Monetary Fund -- the so-called troika -- on July 27, amid concern the country will fail to abide by the commitments needed to obtain continued financial aid.

Yields on Spain’s two-year notes rose to as much as 7.15 percent earlier today, climbing above 7 percent for the first time since the single currency came into being.

In the U.S., sales of new houses dropped in June from a two-year high. Purchases decreased to a 350,000 annual rate, down 8.4 percent from May and the weakest since January, the Commerce Department reported today in Washington. The median estimate in a Bloomberg survey of 74 economists was 372,000.

China Economy

China’s slowing economy faces significant risks and relies too much on investment, the IMF said in an annual review. The Washington-based lender repeated an assessment that the yuan is “moderately” undervalued, and urged leaders to increase consumption and channel citizens’ savings away from housing.

National benchmark indexes rose in 14 of the 18 western- European markets. The U.K.’s FTSE 100 Index fell 0.1 percent, while France’s CAC 40 Index and Germany’s DAX Index climbed 0.2 percent.

BT slid 3.4 percent to 210 pence, its biggest retreat in six weeks, after reporting fiscal first-quarter sales of 4.48 billion pounds ($6.9 billion). That missed the average analyst estimate of 4.58 billion pounds in a Bloomberg News survey.

Drax Group, the owner of the U.K.’s largest coal-fired electricity plant, tumbled 15 percent to 439.7 pence, its biggest plunge since at least 2005. The Department of Energy and Climate Change revised its subsidies for renewable energy, offering less financial support than predicted for generators planning to switch to burning low-carbon fuel.

GlaxoSmithKline

GlaxoSmithKline Plc (GSK) slid 1.4 percent to 1,425.5 pence after cutting its sales forecast for the year. The London-based company reported second-quarter core earnings per share of 26.4 pence, lower than the average analyst estimate of 26.8 pence.

Informa Plc fell 5.3 percent to 350.4 pence. The publisher of Lloyd’s List posted a first-half loss compared with a profit a year earlier as it sold events businesses in Hungary, Austria, the Czech Republic and parts of Germany.

Daimler advanced 4.1 percent to 37.62 euros after saying second-quarter sales increased 10 percent to 28.9 billion euros ($35 billion). The world’s third-largest maker of luxury cars also posted earnings before interest and taxes of 2.24 billion euros, in line with the 2.2 billion-euro average of analyst estimates compiled by Bloomberg.

Lonza Group AG (LONN) jumped 3.7 percent to 45.50 Swiss francs after saying first-half Ebit increased 24 percent to 168 million francs ($170 million), beating the 154.6 million-franc average estimate in a Bloomberg survey of analysts.

The volume of shares changing hands in companies listed on the Stoxx 600 was 22 percent lower than the average of the last 30 days, according to data compiled by Bloomberg.

The VStoxx Index, which tracks Euro Stoxx 50 Index option prices, sank 4.5 percent to 27.18.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

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


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