German stocks dropped for a second day as investors waited for a summit of European leaders later today to break the deadlock in talks and signal a strategy to end the region’s debt crisis.
Adidas AG (ADS), the world’s second-largest sporting-goods maker, declined 3 percent as Morgan Stanley cut its recommendation on the shares. Krones AG (KRN) lost 6.3 percent after reporting lower- than-expected operating earnings. Merck KGaA (MRK) posted its steepest gain since January 2009 after reporting profit that surpassed analyst estimates.
The benchmark DAX Index (DAX) dropped 0.5 percent to 6,016.07 at the close in Frankfurt, erasing earlier gains of as much as 1.6 percent, after a European Union official said talks with banks on losses tied to Greek bonds are deadlocked and suspended. The DAX has lost 13 percent in 2011. The broader HDAX Index slipped 0.5 percent today.
“Policy makers are still in denial mode and dealing with the effects rather than the causes,” said Filippo Garbarino, who oversees $50 million as manager at Frontwave Capital Ltd. in Chiasso, Switzerland. “Leveraging cannot be a solution for a leverage problem. That said, it is difficult to envisage a collapse in the market even if there is no solution today, as we already had that move in the market.”
Heads of governments are holding their 14th crisis summit in 21 months today to discuss Greece’s second bailout, the recapitalization of banks and strengthening the 440 billion-euro ($612 billion) rescue fund into a more potent weapon.
Today’s gathering marks the culmination of six days of negotiations among finance ministers, central and commercial bankers, chancellors, presidents and prime ministers. The real business gets under way at 7:15 p.m. in Brussels when chiefs of the 10 non-euro nations depart, leaving the rest to hash out a strategy that they already say requires more work.
The German parliament today endorsed Chancellor Angela Merkel’s plan to enhance the euro area’s bailout fund. The EU is seeking voluntary participation by banks to take Greek debt losses, though a forced solution can’t be ruled out, an official said today on condition of anonymity because the talks are private.
“The endgame here is fiscal integration in Europe,” said Garbarino. “Everything else is short-term measures and patches.”
Adidas dropped 3 percent to 49.68 euros. Morgan Stanley cut its recommendation on the shares to “equal weight” from “overweight,” saying the company faces an increase in costs as it expands, while a slowdown in China is a “potential risk” to momentum.
Krones lost 6.3 percent to 35.80 euros. The maker of production machinery reported third-quarter earnings before interest and taxes of 15 million euros, falling short of the average analyst estimate for Ebit of 26.3 million euros.
Equinet cut its recommendation on the shares to “reduce” from “buy” after the release.
Deutsche Boerse AG (DB1), the Frankfurt exchange operator, dropped 3.2 percent to 38.88 euros, the steepest decline in the DAX. The European Union may open up competition on settling securities trades and impose minimum-capital rules on companies providing the services in an effort to make cross-border trading in the region cheaper and more secure.
Merck, the maker of cancer drug Erbitux, jumped 8.5 percent to 65.07 euros, its biggest gain since January 2009. The company reported third-quarter profit that beat analysts’ estimates, helped by growth at the Merck Serono pharmaceutical and Millipore equipment businesses.
Net income rose 7.5 percent to 226.6 million euros from a year earlier, the company said. Profit exceeded the 179.3 million-euro average of nine analyst estimates compiled by Bloomberg. Core earnings, which exclude costs such as writedowns and merger expenses, totaled 1.91 euros a share, beating the average estimate of 1.67 euros.
SAP AG (SAP) rose 1.5 percent to 43.48 euros even as the largest maker of business management software said it was keeping its outlook unchanged due to the “macroeconomic environment.”
Co-Chief Executive Officer Bill McDermott said it would be a mistake to interpret the company’s guidance for the full year as “lack of confidence,” and said that “the fourth-quarter pipeline is very strong.”
The shares rose 2.1 percent on Oct. 14 after the company reported third-quarter earnings that beat analysts’ estimates and said software revenue grew 32 percent in the three months.
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