Bloomberg News

European Stocks Post Biggest Weekly Slump in Five Months

November 16, 2012

European stocks posted their biggest weekly drop since June amid concern President Barack Obama and Congress will fail to agree on a new budget, triggering $607 billion of automatic tax increases and spending cuts.

EON AG slumped 16 percent after Germany’s biggest utility lowered its earnings forecast. Vodafone Group Plc slid 5.9 percent as the world’s second-largest mobile-phone company took a 5.9 billion-pound ($9.4 billion) writedown on its operations in Spain and Italy. SBM Offshore NV plunged 19 percent after saying it won’t meet its sales forecast for 2012.

The Stoxx Europe 600 Index dropped 2.7 percent to 262.86 this past week, erasing its advance since the European Central Bank authorized an unlimited bond-buying program in September. The gauge has lost 4.3 percent since Obama won a second term on Nov. 6 amid concern that the president and Republican lawmakers will fail to avert a package of deficit-cutting measures.

“The way to play the fiscal cliff is to be very cautious in the short term,” Stewart Richardson, chief investment officer at RMG Wealth Management LLP said on Bloomberg Television in London this week. “The day after the election we saw another bad down day in equities and that gave us a technical signal that markets were vulnerable to the downside. We have seen that movement follow through this week.”

Stocks have tumbled around the world on concern that the so-called fiscal cliff will push the world’s largest economy into a recession at the beginning of next year.

Budget Negotiations

Obama began negotiations with Democrat and Republican congressional leaders on Nov. 16. The president said at a press conference on Nov. 12 that Bush-era tax cuts for high earners should expire at the start of 2013. House Speaker John Boehner’s colleagues refuse to raise tax rates.

European stocks extended their selloff this week as Israel bombed the Gaza Strip. Hamas’s armed wing, the Al-Qassam Brigades, said that it fired rockets at Jerusalem and Tel Aviv. Crude oil erased its slide this week.

National benchmark indexes fell in every western-European market except Greece and Iceland. France’s CAC 40 lost 2.4 percent, the U.K.’s FTSE 100 slid 2.8 percent and Germany’s DAX declined 3 percent. Spain’s IBEX 35 Index slipped 0.6 percent amid speculation the country will soon request a bailout from the European Union.

A report from the EU’s statistics office on Nov. 15 showed the euro area slipped back into a recession in the third quarter as governments imposed tougher austerity measures to narrow their fiscal deficits. Gross domestic product slipped 0.1 percent, its second consecutive quarter of contraction.

Industrial Production

Separate releases showed that industrial production in the currency zone dropped the most since 2009 in September, Greece’s economy contracted for a 17th straight quarter and jobless claims rose at the fastest pace in more than a year in the U.K.

More than 60 companies on the Stoxx 600 were scheduled to report earnings results this week. Of those that have posted results since Oct. 9, 51 percent have exceeded analysts’ profit forecasts, according to data compiled by Bloomberg. Fifty-three percent have beaten revenue estimates, down from 61 percent in the previous quarter, the data shows.

EON slumped 16 percent after the company said its previous earnings forecast for 2013 “no longer seems achievable” because its gas-fired power plans were not making money. The company also said it will consider cutting dividends.

Vodafone Declines

Vodafone slid 5.9 percent after the telecommunications operator also reported a 1.4 percent decline in service revenue in the second quarter, its first drop in 10 quarters.

SBM Offshore (SBMO) plunged 19 percent after the Dutch oil- services company said it won’t meet its 2012 revenue forecast of $4 billion. The shares also fell after MSCI Inc. removed the stock from some of its indexes.

Zurich Insurance Group AG lost 5.2 percent after Switzerland’s biggest insurer reported on Nov. 15 a 62 percent drop in third-quarter profit following a $550 million writedown. Net income missed analysts’ estimates.

Melrose Plc sank 16 percent after the company said revenue growth in the period since July 1 has slowed compared with the first half of the year and the outlook for earnings-per-share growth in 2013 has become more uncertain.

Hennes & Mauritz AB retreated 4.7 percent after Europe’s second-largest clothing retailer said on Nov. 15 that sales at stores open a year or more slid 5 percent last month, missing some analysts’ estimates.

ICAP, Mediaset

ICAP Plc tumbled 9.4 percent after the world’s largest broker of transactions between banks reported a 26 percent slump in first-half pretax profit. The company said full-year profit would be at the “low end” of analysts’ estimates.

Mediaset SpA declined 8.7 percent after the broadcaster cut its full-year profit forecast and posted an 88.4 million-euro ($112 million) third-quarter net loss.

J Sainsbury Plc fell 4.6 percent after Britain’s third- largest supermarket chain predicted that food inflation will increase over the next few months and shoppers will buy less. The retailer still reported a 5.4 percent increase in first-half earnings.

Vivendi SA gained 4.9 percent after the French company said earnings will fall less this year than it had predicted, helped by cost cuts and demand for video games. Third-quarter profit also exceeded analysts’ estimates.

ITV Plc surged 7.2 percent after the U.K.’s largest terrestrial commercial broadcaster accelerated its cost-cutting program, saying it will deliver 30 million pounds of savings in 2012. The company also reported a 4 percent increase in nine- month revenue.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

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


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