European Stocks Drop After Japan Earthquake, ECB Rate Increase
European stocks fell for the first time in five days after a 7.1-magnitude earthquake struck off the coast of Japan and as the European Central Bank raised interest rates for the first time in almost three years.
Hochtief AG (HOT) tumbled 7.9 percent after Germany’s biggest builder warned of losses at its Australian unit. Bayerische Motoren Werke AG (BMW) led auto-industry shares lower. Halfords Group Plc (HFD) sank the most in six months after the U.K. retailer said profit may miss estimates. Banks limited the selloff after Portugal sought a bailout from the European Union.
The Stoxx 600 declined 0.3 percent to 280.78 at the 4:30 p.m. close in London, erasing an earlier gain. The gauge tumbled 5.7 percent in the four days after Japan was hit by its biggest earthquake in at least a century on March 11. The temblor crippled the Fukushima Dai-Ichi nuclear plant and killed or left missing more than 27,000 people.
“This just shows that investor sentiment is already very brittle because of the proximity to Fukushima,” said Jeremy Batstone-Carr, head of research at Charles Stanley & Co. in London. “There is a lot of uncertainty out there so the initial reaction by the market was: ‘here we go again.’ It will take a little time to assess the impact from this.”
European stocks erased an earlier advance after the earthquake hit 215 miles northeast of Tokyo, resulting in warnings of a possible tsunami. The quake was measured at a depth of about 25 miles and struck around 11:32 p.m. local time, the U.S. Geological Survey reported.
National benchmark indexes declined in 12 out of 18 western European markets today. The U.K.’s FTSE 100 lost 0.6 percent and Germany’s DAX and France’s CAC 40 slid 0.5 percent. Portugal’s PSI-20 rallied 1.2 percent as the nation became the third to ask for EU assistance, following Greece and Ireland.
“The cat is out of the bag for Portugal, but I don’t think this will have a big effect,” said Markus Linke, who runs two hedge funds with 150 million Swiss francs ($163 million) under management for Swisspartners Investment Network AG in Zurich. “The market priced this in many weeks ago.”
Officials may start hammering out the details of a rescue package at a meeting of EU finance ministers that starts tomorrow at Godollo Castle, near Budapest. ECB President Jean- Claude Trichet, whose Governing Council today voted for the first interest-rate increase since 2008, will also attend.
The ECB raised its benchmark rate to 1.25 percent from 1 percent, as predicted by all 57 economists surveyed by Bloomberg News. The bank will continue to monitor inflation risks “very closely” and monetary policy remains “accommodative,” Trichet told reporters in Frankfurt today.
“We’re in the camp that thinks inflation is a temporary spike,” said Thomas Haerter, chief strategist at Swisscanto Asset Management AG in Zurich, which has 13 billion francs under management. “The market still expects the ECB to continue increasing rates.”
The BOE kept its benchmark interest rate at a record low of 0.5 percent for a 26th month.
Hochtief plunged 7.9 percent to 69.99 euros, the most since October 2009. Germany’s biggest listed builder said Australian unit Leighton Holdings Ltd.’s earnings review will likely have “significant adverse effects” on its 2011 forecasts.
Automakers were the worst-performing industry group in the Stoxx 600. BMW dropped 2.8 percent to 59.13 euros after Morgan Stanley downgraded the shares to “underweight” from “overweight.” GKN Plc (GKN), a maker of systems that improve power and torque in cars, slid 4.5 percent to 199.9 pence.
Halfords fell 5.1 percent to 350 pence, the biggest drop since October. The U.K.’s largest seller of car parts and bicycles said pretax profit may be slightly lower than estimates as the squeeze on consumer spending started to hit sales.
Gamesa Corporacion Tecnologica SA, a Spanish wind-turbine manufacturer, slid 4.5 percent to 7.10 euros.
“There is a substantial risk of declining profits,” Patrick Hummel, an analyst at UBS AG (UBSN), wrote in a note to customers today.
Banks limited today’s losses. Banco Espirito Santo SA (BES), Portugal’s biggest publicly traded lender by market value, climbed 4.2 percent to 2.99 euros, the largest gain in three months. Banco Comercial Portugues SA (BCP) rose 4.1 percent to 61.4 euro cents.
National Bank of Greece SA (ETE), whose shares have tumbled 45 percent in the past year, jumped 3.9 percent to 6.39 euros, helping Greece’s ASE Index to a 1.5 percent advance.
Credit Suisse Group AG (CSGN) climbed 2.1 percent to 41.01 francs and UBS AG gained 1.4 percent to 17.15 francs. JPMorgan Chase & Co. named Switzerland’s two largest banks as “top picks” in a note advising investors to “stay overweight” on European lenders as capital raising structurally reduces systemic risk.
Commerzbank AG (CBK), Germany’s second-biggest lender, sank 4.9 percent to 5.42 euros as analysts at WestLB AG and Nomura Holdings Inc. cut their ratings on concern a planned share sale will dilute existing holdings, according to reports today.
“We expect the stock price to remain weak running into the dynamics of the rights issue,” Nomura analysts led by Chintan Joshi wrote in a note to clients.
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