RWE AG (RWE) tumbled 7.2 percent as Germany’s second-largest utility company sought to sell shares. Metro AG (MEO), Germany’s biggest retailer, plunged 14 percent as it forecast falling sales and earnings this year. Yara International ASA jumped the most since April 2009.
The Stoxx 600 slipped 0.3 percent to 241.92 at the close. The gauge rallied 0.8 percent yesterday as Italy’s Prime Minister Mario Monti introduced a proposal to cut his nation’s debt. The gauge posted its biggest rally since November 2008 last week as central banks lowered the interest rate on dollar funding and China reduced its reserve ratio for banks.
S&P’s statement “is for the most part already priced in the markets; it just confirms the deterioration of the finances of the countries in the region and the political dissensions,” said John Plassard, director at Louis Capital Markets in Geneva. “The downgrade warning can perhaps accelerate the implementation of measures and reforms, but it might already be too late.”
National benchmark indexes dropped in 12 of the 17 western- European markets that were open today. France’s CAC 40 Index (CAC) retreated 0.7 percent and the U.K.’s FTSE 100 Index added less than 0.1 percent. Germany’s DAX Index sank 1.3 percent.
Credit Ratings Review
Germany, France and four other euro-area nations may lose their AAA credit ratings depending on the result of the summit of European Union leaders on Dec. 9, S&P said late yesterday. The ratings company put 15 euro nations on review for possible downgrade.
“Systemic stresses in the euro zone have risen in recent weeks and reached such a level that a review of all euro-zone sovereign ratings is warranted,” S&P said in a statement.
The European Financial Stability Facility, the bailout fund for struggling euro-member countries that has funded rescue packages for Greece, Ireland and Portugal partially through bond sales, may lose its top credit rating if any of its guarantors have their own debt grade lowered, S&P said. If the EFSF has to pay higher interest on its bonds, it may not be able to provide as much funding for the most indebted nations.
Merkel, Sarkozy Statement
German Chancellor Angela Merkel and French President Nicolas Sarkozy responded in a joint statement late yesterday that they “took note” of the move by S&P, while both countries “affirm their conviction” that proposals for fiscal union will “strengthen coordination of budget and economic policy and promote stability, competitiveness and growth.”
The rating reviews “will put further pressure on those countries’ financing situation and make things not much easier for them,” said Alessandro Fezzi, senior market analyst at LGT Capital Management in Pfaeffikon, Switzerland. “The good thing about S&P’s warning is that it brought markets back to a more realistic view on the outcome of the upcoming EU summit.”
A measure of German factory orders jumped 5.2 percent in October after a 4.6 percent drop in September, according to a report from report from the Economy Ministry in Berlin. Economists had forecast a 1 percent increase, according to the median of 34 estimates in a Bloomberg News survey.
RWE slumped 7.2 percent to 28.15 euros, its biggest drop in a month, as it raised about 2.1 billion euros ($2.8 billion) to cut debt. The utility sold 80.4 million shares at 26 euros apiece.
A gauge of European utilities was among the worst performing of the 19 industry groups in the Stoxx 600, losing 1.9 percent. EON AG, Germany’s largest utility, slid 3.4 percent to 17.57 euros, while GDF Suez (GSZ) SA fell 1.9 percent to 20.98 euros.
Metro plunged 14 percent to 31.86 euros, its biggest slide since its initial public offering in 1996, after forecasting that sales and earnings will fall this year following a weak start to the Christmas season. Carrefour SA (CA), the biggest retailer in Europe by sales, retreated 6.3 percent to 19 euros.
Banks retreated, with Credit Agricole SA (ACA) sliding 3.2 percent to 4.90 euros and KBC Groep NV (KBC) slumped 4.5 percent to 10.79 euros. Banco Espirito Santo SA, Portugal’s biggest publicly traded lender (BES) by market value, sank 12 percent to 1.22 euros, its largest slump since 1993.
Finmeccanica SpA, Italy’s largest arms company (FNC), slipped 4.8 percent to 3.39 euros after S&P cut its long-term credit rating to BBB- with a negative outlook, from BBB. The rating company cited lower earnings and restructuring of some of Finmeccanica’s divisions.
Valeo SA (FR) dropped 3.1 percent to 32.63 euros after France’s second-largest auto-parts maker said it bought the VTES unit from Controlled Power Technologies Ltd.
Air France-KLM fell 3.4 percent to 4.35 euros after La Tribune reported that the company will announce a freeze on salaries and other measures following a board meeting on Jan. 11. The newspaper cited unidentified people. Air France hopes for savings of a few dozen million euros in 2013 as a result of the move, La Tribune said.
Victrex Plc (VCT), a U.K. maker of heat-resistant plastics for the automotive and energy industries, declined 3.7 percent to 1,148 pence as Charles Pick, an analyst at Numis Securities Ltd., cut the stock to “add” from “buy.”
Yara International jumped 7.2 percent to 246.50 kroner after the biggest publicly traded nitrogen-fertilizer maker (YAR) said its cash-return policy remains “firm.” The company expects to return 40 percent to 45 percent of net income to its shareholders measured as the sum of dividends and share buybacks, averaged over the business cycle.
Wolseley Plc (WOS), the world’s largest supplier of heating and plumbing products, gained 3.6 percent to 1,972 pence after reporting a 5 percent increase in first-quarter revenue. The company reduced its debt by 41 percent to 587 million pounds ($914 million) over the 12 months through Oct. 31.
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