Bloomberg News

European Stocks Post Weekly Drop on U.S. Fiscal Cliff

November 09, 2012

European stocks fell this week on investor concern that the U.S. will slip back into recession if lawmakers fail to reach a budget compromise and as the European Commission said the euro-area economy will stagnate in 2013.

Balfour Beatty Plc (BBY), the U.K.’s largest construction company, plunged 21 percent after saying the outlook for profit margins has faded. PostNL (PNL) NV sank 20 percent after saying full- year underlying cash operating income would be in the bottom half of its forecast. Alcatel-Lucent (ALU) SA surged 16 percent, for the best performance in the Stoxx Europe 600 Index.

The Stoxx 600 dropped 1.7 percent to 270.27 this week as investors focused on the so-called fiscal cliff after U.S President Barack Obama won re-election. The benchmark measure has still rallied 16 percent from this year’s low on June 4 as European Central Bank President Mario Draghi pledged to preserve the euro and the Federal Reserve opted for a third round of asset purchases.

“The market is worried about the fiscal cliff,” said Jacques Porta, who helps manage $627 million at Ofi Patrimoine in Paris. “We have the feeling the Republicans won’t make it easy on Obama.”

Automatic tax increases and spending cuts totaling $607 billion will take effect at the start of 2013 unless the Senate, controlled by Democrats, and the Republican-controlled House pass an agreement on avoiding or reducing the changes. The Congressional Budget Office estimates that the U.S. may slip back into recession in the first half of next year if such a compromise is not reached.

Euro-Area Economy

The European Commission on Nov. 7 forecast that the 17- nation euro economy will expand 0.1 percent in 2013, down from a May forecast of 1 percent. It cut the estimate for Germany, Europe’s largest economy, to 0.8 percent from 1.7 percent.

“With each passing day, there is more and more confirmation of a recession,” said Porta. “The European Commission sent a shiver through the market this week.”

The ECB on Nov. 8 left its benchmark interest rate at a record low of 0.75 percent, as predicted by all but one of 63 economists surveyed by Bloomberg News. The Bank of England held its key interest rate at 0.5 percent.

National benchmark indexes declined in 15 of the 18 western European markets. France’s CAC 40 Index dropped 2 percent and the U.K.’s FTSE 100 Index lost 1.7 percent, while Germany’s DAX Index slid 2.7 percent.

Greek Rescue

Greek Prime Minister Antonis Samaras obtained lawmakers’ approval for a package of austerity measures needed to release further financial aid from the European Union.

However, euro-area finance ministers won’t make a decision on releasing further aid for Greece when they meet in Brussels on Nov. 12, an unidentified EU official said. Nov. 26 is a possible date for the decision, the official added.

Balfour Beatty tumbled 21 percent, the biggest decline in 14 years, after saying that the margin outlook faded because of a lack of building work in Britain. Balfour’s order book decreased by 4 percent to 14.4 billion pounds ($23 billion) in the three months through September.

Balfour has been hurt by “the shelving of construction plans” at Heathrow airport in London and its failure to get a contract for services at the Sellafield nuclear site that was won by Morgan Sindall Group Plc, according to Joe Brent, an analyst at Liberum Capital.

PostNL Forecast

PostNL slumped 20 percent. The Dutch mail-services company on Nov. 5 said full-year underlying cash operating income would be in the bottom half of its forecast of between 110 million euros ($140 million) and 160 million euros.

TNT Express NV (TNTE), which is 30 percent owned by PostNL, declined 9.1 percent. European Union Competition Commissioner Joaquin Almunia said late on Nov. 2 that United Parcel Service Inc.’s bid for TNT Express needed “substantial remedies” to settle antitrust concerns.

Eurasian Natural Resources Corp., a producer of ferro alloys and iron ore in Kazakhstan, lost 13 percent after saying on Nov. 8 sales in the first nine months slumped and will continue to be pressured by lower prices.

Rheinmetall AG (RHM), the maker of KS Kolbenschmidt engine pistons and a partner in Germany’s Leopard 2 battle tank, retreated 7.9 percent as declining profit at its defense unit led the company to forecast a drop in earnings.

Sales will total 4.8 billion euros this year, 2 percent less than an earlier forecast, while earnings before interest and taxes will fall 15 percent to 300 million euros rather than match the 2011 figure, the company said on Nov. 9.

Commerzbank Earnings

Commerzbank AG (CBK) tumbled 13 percent. Germany’s second-biggest lender reported profit that missed analysts’ projections on losses from non-core assets and a decline in consumer banking earnings. Third-quarter net income was 78 million euros compared with a loss of 687 million euros a year earlier, the lender said on Nov. 8. That compared with the 83 million-euro average estimate of nine analysts surveyed by Bloomberg.

Alcatel-Lucent surged 16 percent for the best performance in the Stoxx 600 after AT&T Inc. said on Nov. 7 it will invest $14 billion over three years to expand broadband networks.

Ryanair Holdings Plc (RYA) advanced 8.4 percent. Europe’s biggest discount airline posted a 23 percent increase in fiscal second- quarter profit and raised its forecast for full-year earnings after strong summer sales helped boost fares more than anticipated.

Ryanair on Nov. 5 said net income for the three months ended Sept. 30 jumped to 496.8 million euros. Analysts had expected earnings of 440 million euros, based on the average of five estimates.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

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


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