European Stocks Retreat on Greece Debt Talks; SocGen, Glencore Shares Fall
Tuesday, 07 February 2012 | 00:00
European (SXXP) stocks dropped, with the Stoxx Europe 600 Index trimming a six-month high, as Greece struggled to reach a deal with its international creditors.
Vedanta Resources Plc (VED) slipped 3.1 percent as the shares of metal producers declined. Glencore International Plc slid 4.5 percent after a report that the commodities trader may offer 2.8 shares for each Xstrata Plc (XTA) share. Societe Generale SA, France’s second-biggest lender, and Credit Agricole SA (ACA) decreased more than 2.5 percent.
The benchmark Stoxx 600 declined 0.1 percent to 264.27 at the close, paring an earlier drop of as much as 0.8 percent. More than three stocks retreated for every two that advanced. The gauge rallied 3.6 percent last week as a U.S. payrolls report showed that the world’s biggest economy added 243,000 jobs in January, beating the median economist estimate in a Bloomberg News survey.
“This week is crunch time for Greece,” said Witold Bahrke, a senior strategist at PFA Pension A/S in Copenhagen, which manages $45 billion. “We can no longer completely exclude extreme scenarios such as a disorderly default or -- a bit further down the line -- an exit from the euro area. Investors have become fairly resilient toward news from Greece, but we are seeing small signs negative sentiment is taking over after the positive mood dominating markets recently.”
National benchmark indexes declined in 15 of the 18 western-European (SXXP) markets today. The U.K.’s FTSE 100 Index slipped 0.2 percent. France’s CAC 40 Index declined 0.7 percent, while Germany’s DAX Index (DAX) fell less than 0.1 percent.
Greece Funding Agreement
Greece’s Prime Minister Lucas Papademos struck a tentative deal with the leaders of the three parties supporting his interim government to boost economic competitiveness and extend spending cuts. The politicians agreed in a five-hour meeting yesterday to make additional reductions this year equal to 1.5 percent of gross domestic product.
The policy makers meet tomorrow to work on the detail of plans for bank recapitalizations, ensuring the viability of pension funds and measures to reduce wage and non-wage costs to boost competitiveness.
The euro area’s debt crisis will cut China’s economic expansion almost in half if it worsens, a scenario that would warrant “significant” fiscal stimulus from the nation’s government, the International Monetary Fund said.
Based on the IMF’s “downside” forecast for the global economy, China’s growth would drop by as much as 4 percentage points from the fund’s current projection for an expansion of 8.2 percent this year, the organization said in a report released today by its China office in Beijing.
Mining Companies Drop
Copper declined on the London Metal Exchange after the IMF released its growth prediction for the world’s largest consumer of the metal. Vedanta, India’s biggest copper producer, slid 3.1 percent to 1,317 pence and Rio Tinto Group, the world’s third- largest mining company, fell 1.1 percent to 3,946 pence.
Glencore retreated 4.5 percent to 460.75 pence as the Financial Times reported that the company may offer an 8 percent premium over Xstrata’s closing share price on Feb. 1. The newspaper cited people familiar with the merger discussions. Xstrata declined 1.7 percent to 1,261.5 pence in London.
Societe Generale (GLE) slid 2.9 percent to 23.55 euros, while Credit Agricole fell 2.7 percent to 5.18 euros.
Julius Baer Group Ltd (BAER) slipped 3.8 percent to 36.40 Swiss francs. The wealth manager founded in 1890 said it will probably have to pay a fine to resolve tax matters with the U.S. as full- year profit declined 27 percent. The Zurich-based bank paid Germany 50 million euros ($65.7 million) to end an investigation over undeclared client assets.
European Stock Valuations
The Stoxx 600 trades at 10.8 times estimated profits, compared with the average price-earnings ratio of 11.9 over the past five years, according to data compiled by Bloomberg.
Of the 65 companies in the gauge that have announced full- year earnings this quarter, 34, or 52 percent, have reported profits per share that fell short of analysts’ estimates, according to data compiled by Bloomberg showed.
Air France-KLM (AF) Group dropped 4.1 percent to 5.12 euros as labor unions went on strike in France. The stoppage, involving pilots, flight attendants and ground workers, will run through Feb. 9. as unions protest against a bill to go before France’s senate that would force every employee planning to strike to give 48 hours’ notice. The measure would help the airline assess how future strikes would affect passengers.
Vestas Shares Fall
Vestas Wind Systems A/S (VWS) fell 7.7 percent to 68.70 kroner, their largest slide in a month, after ING Groep NV cut its price estimate for the world’s largest maker of wind turbines. The shares rallied 14 percent on Feb. 3.
Vestas Chairman Bent Carlsen has no plans to step down or change the management, newspaper Berlingske quoted him as saying in an interview yesterday. The industry faces challenges and investors shouldn’t confuse a bad market with bad leadership, Carlsen said, according to the Copenhagen-based newspaper.
A third of U.K. Prime Minister David Cameron’s Conservative Party lawmakers have signed a letter urging him to cut subsidies for onshore wind farms in favor of other renewable energy sources, according to a report yesterday.