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Stocks, Pound, U.S. Futures Drop; Gold Reaches Record

European stocks fell for a third day as investors continued to shun the region on concern the sovereign debt crisis will harm economic growth.

E.ON AG and RWE AG dropped more than 2 percent after Germany proposed new levies on the nuclear power industry to increase government revenue. BP Plc tumbled to a 14-month low as the U.S. promised a full investigation into the company’s oil spill. Tesco Plc fell 2.4 percent after announcing Chief Executive Officer Terry Leahy will retire. Spain’s benchmark IBEX 35 plunged to its lowest level in 14 months.

The benchmark Stoxx Europe 600 Index declined 1.1 percent to 240.06, as 18 out of 19 industry groups retreated. The Stoxx 600 has slumped 12 percent from this year’s high on April 15 as credit rating downgrades for Spain, Portugal and Greece triggered concern some European nations will struggle to fund their deficits. The scale of the U.K.’s fiscal challenge is “formidable,” Fitch Ratings said today, fanning concern that the crisis may spread to the region’s largest economies.

“There’s clearly a very unstable situation” with the global economy, said Richard Jeffrey, the chief investment officer at Cazenove Capital Management in London, which manages $22 billion. “We’ve seen what everyone has grabbed on to as a ‘V’ shaped recovery. But is that ‘V’ shape simply a reflection of what happened in the past? Does it tell us about the future or is it rather flatter?”

Photographer: Chris Ratcliffe/Bloomberg

Tesco CEO Terry Leahy. Close

Tesco CEO Terry Leahy.

Close
Open
Photographer: Chris Ratcliffe/Bloomberg

Tesco CEO Terry Leahy.

Worst Opportunities

International views of the European Union have declined sharply. More than half of respondents in a Bloomberg survey believe the EU offers the worst investment opportunities, up from a third who said so in January, when Europe also ranked at the bottom.

Fitch said the U.K. needs to accelerate plans to reduce its budget deficit. The warning came one day after Prime Minister David Cameron told Britons to expect years of spending cuts, while the European Union pledged tougher sanctions on governments that break deficit rules.

The U.S. has supplanted China and Brazil as the most attractive market, with investors betting money on President Barack Obama’s stewardship of the U.S. economy, according to a global quarterly poll of investors and analysts who are Bloomberg subscribers.

U.S. Recovery

The American economic recovery is “moderate-paced,” given the depth of the recession, and the unemployment rate is likely to stay high “for a while,” Federal Reserve Chairmen Ben S. Bernanke said last night in Washington. Employers in the U.S. hired fewer workers in May than forecast and Americans dropped out of the labor force, showing a lack of confidence in the recovery, the Labor Department said June 4.

Spain’s IBEX 35 Index declined 1.4 percent to its lowest in more than 13 months. The extra yield investors demand to hold 10-year Spanish bonds over German bunds widened eight basis points.

Michael Dicks, head of research at Barclays Wealth, said he expects some parts of Europe to experience a double-dip recession.

“In parts of Europe almost for sure,” Dicks said in an interview with Bloomberg Television today. “Spain’s right on the cusp so quite likely it will double dip.”

Global tracked equity funds absorbed about $1.5 billion in the week ended June 2, helped by inflows to European stocks as investors speculated that Germany’s exports will benefit from the euro’s declines, EPFR Global said. European stocks funds received some $1.46 billion, helping overall equity funds halt redemptions of more than $20 billion in the previous week, EPFR said in an e-mailed statement.

German Exports

Exports from Germany, Europe’s largest economy, declined in April after surging the most in 18 years in March.

Sales abroad, adjusted for working days and seasonal changes, fell 5.9 percent from a month earlier, when they soared 10.8 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast an April drop of 2 percent, the median of 11 estimates in a Bloomberg News survey shows. Imports decreased 7.3 percent in the month.

“It’s just a backlash from last month’s jump,” said Alexander Koch, an economist at Unicredit Group in Munich. “German exports will keep selling like hot cakes. Global demand is strong and the weaker euro should also help.”

National benchmarks fell in every western European nation today except for Greece. The U.K.’s FTSE 100 Index lost 0.8 percent, while Germany’s DAX Index fell 0.6 percent. France’s CAC 40 Index retreated 1 percent.

German Utilities

E.ON and RWE dropped 3.6 percent to 23.45 euros and 2.9 percent to 56.25 euros, respectively. Utilities will help pay for the cleanup of a radioactive waste storage-facility and give up some of the profits if they run nuclear reactors past scheduled shutdown dates, the German government said yesterday. Germany is trying to boost government revenue from the nuclear power industry by 2.3 billion euros ($2.7 billion) a year as Chancellor Angela Merkel seeks to cut the budget deficit and bolster the euro.

BP slumped 5 percent to 408.9 pence, its lowest level since April 2009. President Barack Obama said in an interview that he is looking for “whose ass to kick” in response to the oil spill. Obama said there may have been “some corner cutting” on safety on the doomed oil rig and promised a full investigation.

BP said more oil is being recovered from its leaking Gulf of Mexico well with a cap device, as the commander of the U.S.’s spill-response team said it’s unknown how much crude continues to leak.

The U.S. Coast Guard said it’s looking into a report of a second Gulf of Mexico oil spill. The Coast Guard has no knowledge of a spill in the area where Businessinsider.com said Diamond Offshore Drilling Inc.’s Ocean Saratoga rig is leaking oil, Lt. Commander Chris O’Neil said today in a telephone interview.

Leahy to Retire

Tesco lost 2.4 percent to 397.4 pence after the largest U.K. retailer said that Terry Leahy decided to step down in March 2011 as CEO after 14 years. He will be replaced by Philip Clarke. Retailers posted the second-biggest losses among all 19 industry groups on the Stoxx 600, falling 2.1 percent.

Chloride Group Plc surged 19 percent to 344.5 pence as ABB Ltd. agreed to buy Britain’s largest maker of backup power equipment for 864 million pounds ($1.3 billion). The world’s biggest supplier of power grids will pay 325 pence a share in cash for each Chloride share, 56 percent higher than the closing price on April 23, the day Emerson Electric Co. made a failed approach. ABB gained 1.5 percent to 19.5 Swiss francs.

Aggreko, Aryzta

Aggreko Plc rose 3.9 percent to 1,407 pence after the world’s biggest provider of mobile power-supply equipment said profit was up about 20 percent in the first half, with revenue advancing by about 10 percent. Performance for the full year is now expected to be “significantly” ahead of prior estimates, prompting the company to raise its investment budget.

FLSmidth & Co. A/S, the world’s biggest maker of cement kilns, rose 2.4 percent to 382.2 kroner after the stock was raised to “buy” from “neutral” at Goldman Sachs Group Inc.

Aryzta AG posted the biggest rally on the Stoxx 600, surging 8.2 percent to 40.3 francs. The Swiss supplier of bakery products to supermarkets and restaurants said it will acquire two U.S.-based businesses for $1.08 billion, adding 30 factories in nine countries and doubling production capacity.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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