Bloomberg News

European Stocks Drop as Boehner Rules Out Clean Debt-Limit Bill

October 07, 2013

European stocks dropped to their lowest level in four weeks as U.S. House Speaker John Boehner ruled out raising the federal government’s debt limit without setting preconditions.

Burberry Group Plc (BRBY) retreated 1.2 percent as its chief executive officer told a newspaper that the slowdown in Chinese luxury-goods sales may continue. SAP AG lost 2.2 percent, contributing the most to a decline by a gauge of technology stocks, after a report that the German software maker has held talks with BlackBerry Ltd. Solvay SA (SOLB) climbed 1.2 percent after agreeing to buy U.S. chemicals maker Chemlogics Group LLC.

The Stoxx Europe 600 Index slid 0.2 percent to 309.18 at the close in London, after earlier falling as much as 1 percent. The gauge slipped 0.7 percent last week as the U.S. began its first partial government shutdown in 17 years on Oct. 1.

“Everyone assumed there would be more action over U.S.- shutdown and debt-ceiling talks over the weekend, and now reality has set in,” Veronika Pechlaner, who helps oversee about $2.3 billion as an investment manager at the Jersey, Channel Islands-based Ashburton Ltd., said by phone. “Investors will be nervous until some sort of compromise is reached. Any U.S. weakness is not good news for Europe.”

Boehner, the Republicans’ leader in the House of Representatives, continued to demand changes to President Barack Obama’s health-care act before agreeing to extend the borrowing authority. The Treasury has said it will exhaust measures to avoid exceeding the $16.7 trillion debt ceiling on Oct. 17. If that happens, the U.S. will run out of money to pay all of its bills at some point between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

Debt Limit

“We are not going to pass a clean debt limit,” Boehner said in an interview on ABC yesterday. “The votes are not in the House to pass a clean debt limit.”

Republican and Democrat lawmakers continued to clash over the emergency budget needed to end the shutdown. The move has placed thousands of federal employees on unpaid leave and closed down some services.

Obama has said he won’t negotiate over funding the federal government or raising the debt ceiling. The President has argued that the Republican-controlled House should not use either issue, which he described as basic functions of Congress, as points of leverage.

National benchmark indexes retreated in 13 of the 18 western-European markets. The U.K.’s FTSE 100 dropped 0.3 percent, while Germany’s DAX slipped 0.4 percent, while France’s CAC 40 was little changed. Greece’s ASE Index gained 2.5 percent today after John Paulson said in an interview with the Financial Times that his hedge fund has bought stakes in two of the country’s lenders.

Volatility Rises

The VStoxx Index, which measures expected volatility on the Euro Stoxx 50 Index, rose 3.1 percent to 20.16 today.

Burberry dropped 1.2 percent to 1,608 pence after CEO Angela Ahrendts told Les Echos that “this Chinese slowdown is perhaps not an accident, but the new given.” The Asia Pacific region accounted for 39 percent of the company’s sales in the 12 months through March 2013.

SAP declined 2.2 percent to 52.90 euros. The world’s biggest enterprise-software company, along with Cisco Systems Inc. and Google Inc., has held talks to buy all or part of BlackBerry, Reuters reported, citing unidentified people familiar with the matter. The Canadian phonemaker had asked for expressions of interest from potential buyers as an alternative to the tentative agreement it reached with a financial group led by Fairfax Financial Holdings Ltd. on Sept. 23. Reuters said that SAP, Google and Cisco declined to comment.

Forecast Cut

Marks & Spencer Group Plc (MKS) declined 2.8 percent to 480.3 pence after Credit Suisse Group AG estimated that the U.K. food-and-clothing retailer’s same-store sales fell 1.5 percent in the second quarter of its financial year. The brokerage had forecast a 0.5 percent increase. Marks & Spencer reports its first-half results on Nov. 5.

Solvay gained 1.2 percent to 108.75 euros after saying it will buy Chemlogics for $1.35 billion in cash. The acquisition will generate cash and earnings in its first year, according to a statement by the Belgian maker of gelling agents used in hydraulic fracturing.

European Aeronautic Defence & Space Co. rose 2.2 percent to 50.30 euros after its Airbus SAS subsidiary won its first order from Japan Airlines Co.

EON SE and RWE AG, Germany’s biggest utilities, gained 4.1 percent to 13.81 euros and 5.2 percent to 26.93 euros, respectively. The European Commission proposes to scale back a fixed-price guarantee for renewable energy, Frankfurter Allgemeine Zeitung reported. The newspaper cited an internal document from the commission.

Greek Lenders

Piraeus Bank SA (TPEIR) advanced 3 percent to 1.37 euros and Alpha Bank AE gained 3.1 percent to 60.8 euro cents. Paulson & Co. owns stakes in the two lenders, Paulson told the FT.

“The Greek economy is improving, which should benefit the banking sector,” Paulson said in an interview with the newspaper. Baupost Group LLC, Eaglevale Partners LP, Dromeus Capital Management, Falcon Edge Capital LP, York Capital Management LP and Och-Ziff Capital Management Group LLC have also invested in the country’s lenders, according to the FT, which cited unidentified people close to the situation.

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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