European Stocks Retreat After Fed Refrains From Further Stimulus
European stocks declined, with the benchmark Stoxx Europe 600 Index falling to its lowest level in two weeks, as the Federal Reserve refrained from taking new action to bolster the world’s largest economy.
Rio Tinto Group and Eurasian Natural Resources Corp. paced a selloff in mining companies, both falling more than 4.5 percent as copper slid. Logica Plc tumbled 16 percent after the Anglo-Dutch computer services provider cut its forecast for sales growth this year. Bayerische Motoren Werke AG (BMW), the biggest maker of luxury cars, and Volkswagen AG (VOW), the maker of Audi vehicles, fell at least 4.5 percent.
The Stoxx 600 plunged 2.1 percent to 232.44 at the close after the Fed failed to signal a third round of asset purchases known as quantitative easing, or QE3, following its meeting yesterday. The Stoxx 600 has retreated 16 percent this year as the euro area’s sovereign-debt crisis spread to the region’s larger economies.
“Europe is catching up to the U.S. responding negatively to the Fed not launching QE3,” said Witold Bahrke, a senior strategist at PFA Pension A/S, which manages $45 billion, in Copenhagen. “There’s a strong focus on policy makers and any differences between them.”
The Fed declined to take new action to lower borrowing costs in a statement after European markets closed last night. The central bank said the U.S. economy continues to expand even as the global economy slows. The Fed statement repeated a warning at its two previous meetings that the “strains in global financial markets continue to pose significant downside risks to the economic outlook.”
Federal Reserve Statement
The central bank said it will continue to exchange $400 billion of short-term debt for long-term securities to lengthen the average maturity of its holdings, a move dubbed Operation Twist. The Fed also didn’t alter its policy of reinvesting its portfolio of maturing housing debt into agency mortgage-backed securities.
In the euro area, Italy sold five-year bonds at an average yield of 6.47 percent, up from 6.29 percent at the last auction on Nov. 14, the Bank of Italy said. Spain will offer debt maturing in 2016, 2020 and 2021 tomorrow.
A report from Eurostat showed that industrial production in the euro area slipped 0.1 percent in October, led by a drop in the output of energy and goods such as steel. Economists had forecast no change, according to a Bloomberg survey.
Germany’s Growth Forecast
The Munich-based Ifo institute slashed its 2012 economic growth forecast for Germany to 0.4 percent from a previous prediction of 2.3 percent. Ifo said Europe’s largest economy can avoid a recession unless the region’s debt crisis worsens.
National benchmark indexes dropped in every western- European market except Greece. Germany’s DAX Index lost 1.7 percent and the U.K.’s FTSE 100 Index decreased 2.3 percent. France’s CAC 40 Index tumbled 3.3 percent amid speculation that France may lose its AAA rating on its government debt.
“The market is bracing for the possibility of a downgrade of France,” said Jean Borjeix, strategist at Paris-based Platinium Gestion, which oversees $170 million. “We could see further losses if and when a downgrade is finally announced. Banks are obviously in the first line because they own French bonds on their balance sheets. Clearly a downgrade would hit their valuations.”
Rio Tinto, the world’s second-biggest mining company (RIO), declined 4.7 percent to 3,035.5 pence. ENRC slipped 5.6 percent to 611 pence as copper dropped to a seven-week low on the London Metal Exchange.
Logica Shares Sink
Logica plunged 16 percent to 62.1 pence, its biggest decline since May 2002, after reducing its revenue-growth forecast and accelerating a restructuring that will lead to charges of 80 million pounds ($124 million) this year and 1,300 job losses.
BMW lost 5.1 percent to 50.25 euros and Volkswagen, Europe’s biggest carmaker, slipped 4.5 percent to 114.95 euros. The weakening Chinese property market may signal a decline in demand for luxury cars said Dorris Chen, head of China research at BNP Paribas SA in Shanghai, in an interview today. Baoxin Auto Group Ltd., a Chinese luxury car dealer that sells BMW vehicles, dropped 14 percent on its first day of trading on Hong Kong’s stock exchange.
BNP Paribas, SocGen
BNP Paribas and Societe Generale (GLE) SA, France’s two biggest lenders (BNP), dropped 7.4 percent to 27.87 euros and 8 percent to 16.31 euros, respectively, as Citigroup Inc. analyst Ronit Ghose said European lenders may drop another 30 percent as the euro area has only begun to deleverage.
Tele2 AB (TEL2B) sank 6 percent to 123.60 kronor as Sweden’s second-biggest phone company lowered its forecast for subscribers in Russia to as few as 20.6 million by the end of this year. The company had predicted it would get 21 million customers in the country.
Inditex SA (ITX) advanced 1.7 percent to 62.75 euros in Madrid after the world’s largest clothing retailer posted third-quarter profit that climbed 6.2 percent as the company added stores in Asia and expanded its e-commerce range for Zara and other brands.
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