European stocks posted their biggest weekly drop since March as Spain entered a recession, a report showed the U.S. economy added fewer workers than expected and investors awaited elections in France and Greece this weekend.
Home Retail Group Plc (HOME) had its biggest weekly drop since 2006 after it said annual profit fell 60 percent and it won’t pay a final dividend. Man Group Plc plunged after saying clients withdrew a net $1 billion in the first quarter, while costs were higher than analysts had predicted. Vestas Wind Systems A/S (VWS) fell for a second week.
The Stoxx Europe 600 Index (SXXP) retreated 2.4 percent to 253 this week, its biggest slide in six weeks. The Stoxx 600 gained 0.5 percent last week. The gauge has lost 7.1 percent since its 2012 high on March 16 amid renewed concern that the euro area has yet to contain its sovereign-debt crisis.
“The closely watched non-farm payrolls report came in significantly below expectations,” said Chris Beauchamp, a market analyst at IG Index in London. “The outlook does not look particularly promising.”
National benchmark indexes fell in 15 of the 18 western- European markets this week. The U.K.’s FTSE 100 Index (UKX) and France’s CAC 40 lost 2.1 percent. Germany’s DAX dropped 2.6 percent for its biggest weekly retreat this year.
Spain Enters Recession
Spain’s IBEX 35 Index sank 2.2 percent as a report showed that Europe’s fifth-largest economy has entered its second recession since 2008. The Mediterranean nation’s gross domestic product contracted 0.3 percent in the first quarter. It also shrank 0.3 percent in the fourth quarter of 2011.
In the U.S., a Labor Department report showed that the world’s largest economy added 115,000 workers in April, the smallest number in six months. The unemployment rate unexpectedly declined to a three-year low of 8.1 percent as Americans left the labor force. European stocks fell as investors speculated that the slowdown in hiring will restrain the wage growth needed to fuel consumer spending, which accounts for 70 percent of economic activity in the U.S.
In the euro area, polls show the French will probably elect their first Socialist president since 1995, while recession- weary Greeks will pick a new government. Local elections will test Italy’s political pulse, and voters in a northern German state may deal a symbolic blow to Chancellor Angela Merkel’s coalition.
“It still looks as if Francois Hollande will end up owning the keys of the Elysee Palace come Sunday night,” Beauchamp said. “In Greece, the situation is much less clear. Uncertainty could well persist further into next week about the new makeup of the government in Athens, which would raise the possibility of more losses for markets.”
Euro-Area Unemployment
Unemployment in the 17 countries that use the euro rose to a 15-year high and manufacturing contracted for a ninth month, according to reports on May 2. The jobless rate increased to 10.9 percent in March from 10.8 percent in February, the European Union’s statistics office in Luxembourg said. That’s the highest since April 1997, according to Bloomberg News data.
A euro-area composite index based on a survey of purchasing managers in both services and manufacturing dropped to 46.7 in April from 49.1 in March, London-based Markit Economics said today. That fell short of an initial estimate of 47.4 on April 23.
The European Central Bank kept its benchmark interest rate at a record low of 1 percent on May 3 as predicted by every economist in a Bloomberg News survey. While the ECB still expects a gradual economic recovery this year, “downside risks” prevail and the outlook has become “more uncertain,” the central bank’s president, Mario Draghi, said.
Earnings Beat Estimates
Some 60 of the Stoxx 600’s companies posted results this week. Of those that have reported since April 10, 54 percent have beaten analysts’ estimates for earnings per share, according to data compiled by Bloomberg.
Home Retail tumbled 24 percent. The U.K. owner of the Argos and Homebase chains posted pretax profit that fell to 102 million pounds ($165 million) in the 52 weeks ended Feb. 25, the Milton Keynes, England-based retailer said. That compared with the 96.7 million-pound average estimate of 19 analysts surveyed by Bloomberg News. The retailer will pay a full-year dividend of 4.7 pence a share, down from 14.7 pence a year earlier, with no final dividend.
Man Group plunged 17 percent. The world’s biggest publicly traded hedge-fund manager reported that client withdrew $4.1 billion from Man’s investment funds, which was partly offset by $3.1 billion of sales, the London-based company said.
Vesta, Delhaize Slump
Vestas Wind Systems A/S sank 13 percent, its largest weekly drop since February, after saying its first-quarter loss almost doubled. The world’s biggest wind-turbine maker also said it expects to spend more to repair faults in 376 machines.
Delhaize Group SA (DELB) slumped 14 percent to its lowest price since 2003 after the owner of the U.S. Food Lion stores forecast that earnings will drop as much as 20 percent and a decline in same-store sales accelerated.
Operating profit before expenses and writedowns linked to store closures will fall as much as 20 percent before taking into account currency fluctuations, the Brussels-based company said. Profit on that basis fell 17 percent to 189 million euros ($247 million) in the first quarter, missing the 204.7 million- euro average of seven analyst estimates compiled by Bloomberg.
Source: Bloomberg