European Stocks Post Drop as U.S. Economic Growth Is Slower Than Forecast
European stocks declined this week as slower-than-forecast U.S. economic growth overshadowed a rally in banks after European Union stress tests eased concern that lenders may need to raise more capital.
Nestle SA and Unilever led food companies lower as U.S. rivals Kellogg Co. and Colgate-Palmolive Co. reported revenue that missed estimates. Gamesa Corporacion Tecnologica SA tumbled 12 percent after reducing its forecast for wind turbine sales. UBS AG, Switzerland’s largest bank, surged the most in 15 months after earnings beat analysts’ estimates.
The Stoxx Europe 600 Index slipped 0.2 percent to 255.35 this past week, trimming the gain in July to 4.9 percent. The gauge has fallen 6.2 percent from this year’s high on April 15 amid concern that Europe’s sovereign-debt crisis may hamper the economic revival.
“The GDP report raises concerns surrounding the sustainability of the recovery,” David Semmens, an economist with Standard Chartered Bank in New York, wrote in an e-mail. “The dire contribution from the U.S. consumer will weigh on sentiment. Without a pick-up in hiring in the U.S. we expect GDP growth to continue to fade through 2010.”
A Commerce Department report yesterday showed that growth in the U.S. slowed to a 2.4 percent annual rate in the second quarter, less than forecast, reflecting a larger trade deficit and cooler consumer spending. Other U.S. data this week on durable-goods orders and consumer confidence also trailed economists’ estimates.
National benchmark indexes fell in 8 of the 18 western European markets. Germany’s DAX lost 0.3 percent and the U.K.’s FTSE 100 retreated 1 percent. France’s CAC 40 advanced 1 percent as Societe Generale SA and Credit Agricole SA rallied more than 12 percent.
Nestle, the world’s biggest food company, slid 4.1 percent, the biggest drop in almost 3 months. Unilever, the second- largest consumer-goods company, plunged 6.7 percent, the most since March 2009.
Kellogg, the biggest U.S. maker of breakfast cereal, and Colgate, the largest toothpaste maker, reported sales that missed analysts’ projections.
Deutsche Bank AG strategist Gareth Evans downgraded the European food and beverage industry to “neutral” from “overweight,” citing the sector’s performance this year.
Parmalat SpA, Italy’s biggest dairy food company, lost 7.2 percent after being downgraded to “underperform” at CA Cheuvreux. CSM NV, the world’s largest supplier of bakery ingredients, dropped 7.5 percent.
Gamesa plummeted 12 percent after Spain’s largest wind turbine maker cut its sales forecasts for this year and 2011 as European clients reduced orders amid regulatory uncertainty and lack of financing.
BofA Merrill Lynch Global Research downgraded the stock to “underperform” from “neutral,” saying in a note that the guidance “was even worse than we expected.”
Rival Vestas Wind Systems A/S, the world’s largest maker of wind turbines, dropped 3.8 percent.
A measure of banking shares in the Stoxx 600 posted the biggest gain among 19 industry groups, rallying 4.9 percent.
Greece’s Alpha Bank SA jumped 16 percent and Bank of Ireland Plc soared 15 percent. Royal Bank of Scotland Group Plc, Britain’s biggest government-owned bank, advanced 10 percent. UBS surged 15 percent, the most since April 2009.
EU stress-test results showed after the close of the market on July 23 that the majority of the region’s banks are adequately capitalized. The trials, carried out by the Committee of European Banking Supervisors, found that only Germany’s Hypo Real Estate Holding AG, Agricultural Bank of Greece SA and five Spanish savings banks didn’t have adequate reserves to maintain a Tier 1 capital ratio of at least 6 percent in the event of a recession and sovereign-debt crisis.
Banks received a further boost as the Basel Committee on Banking Supervision softened some of its proposed capital and liquidity rules, agreeing to allow certain assets, including minority stakes in other financial firms, to count as capital.
Deutsche Bank’s Evans raised his stance on the European banking industry to “neutral” from “underweight,” saying that “worries over leverage ratios, funding and liquidity requirements are now much reduced.”
Bwin Interactive Entertainment AG surged 22 percent and PartyGaming Plc jumped 28 percent after saying they plan to merge. Gibraltar-based PartyGaming plans to acquire Bwin in a reverse takeover valued at about 1.13 billion pounds ($1.77 billion) to create the world’s biggest publicly traded online gambling company.