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Europe Stocks Drop the Most in Five Weeks on Fed Concern

European stocks dropped the most in more than five weeks as better-than-forecast U.S. jobless claims fueled speculation the Federal Reserve will taper its bond-buying program this year.

Zurich Insurance Group AG (ZURN) lost 3.6 percent after second-quarter profit missed analysts’ estimates. Hennes & Mauritz AB (HMB) declined the most in seven weeks as Europe’s second-biggest clothing retailer reported worse-than-expected sales. BG Group Plc, which derives 20 percent of its oil-and-gas production from Egypt, slipped 2.4 percent as the death toll from nationwide violence in the most populous Arab country climbed above 500.

The Stoxx Europe 600 Index slid 1.1 percent to 305.34 at the close in London, its largest drop since July 5. The equity benchmark yesterday rose to its highest level since May 22 as the euro area’s economy returned to growth in the three months through June after six quarters of contraction. It has still rallied 11 percent from a low on June 24.

“European stocks have had a long period of going up and we’re at the end of the reporting season, so we’re seeing a bit of a selloff today,” said Andrea Williams, who helps oversee $76 billion as head of European equities at Royal London Asset Management. “There’s some concern about how the Fed will manage tapering of its bond-buying program. The situation in Egypt is also causing some nerves about a spike in oil prices.”

The volume of shares changing hands in Stoxx 600 companies was 31 percent lower than the average of the past 100 days, according to data compiled by Bloomberg.

U.S. Unemployment

In the U.S., a Labor Department report showed fewer Americans applied for unemployment benefits last week. Jobless claims (INJCJC) in the week ended Aug. 10 fell to 320,000 from a revised 335,000 a week earlier. The median forecast of economists surveyed by Bloomberg had called for a reading of 335,000.

“We got a fantastic jobless claims figure, which really should be a boost to the markets but instead it’s having the opposite effect,” Craig Erlam, a market analyst at Alpari U.K. Ltd. in London, said by telephone. “Tapering is really at the forefront of everyone’s minds.”

A Fed report showed that output from U.S. factories, mines and utilities was unchanged in July, after gaining a revised 0.2 percent in June. The median estimate of economists surveyed by Bloomberg had called for a 0.3 percent increase.

New York

A separate release showed manufacturing expanded at a slower pace in the New York region in August. The Fed Bank of New York’s general economic index slipped to 8.2 from 9.5 in July. Readings greater than zero mean activity expanded in New York, northern New Jersey and southern Connecticut.

National benchmark indexes declined in all 14 western-European markets that opened today. Markets in Italy, Greece, Austria, Cyprus and Luxembourg were closed for the Assumption holiday. Germany’s DAX slid 0.7 percent, while the U.K.’s FTSE 100 tumbled 1.6 percent. France’s CAC 40 lost 0.5 percent.

Zurich Insurance declined 3.6 percent to 243 Swiss francs, its biggest drop since April, after posting second-quarter net income of $789 million. That missed the $823.8 million average projection of analysts in a Bloomberg survey. Switzerland’s largest insurer said the floods in central Europe in May and June cost it $140 million.

H&M lost 1.6 percent to 242 kronor after saying same-store sales fell 1 percent in July from the same month a year earlier. The average estimate in an SME Direkt survey of analysts had called for an increase of 0.8 percent.

Egypt Unrest

BG Group declined 2.4 percent to 1,178 pence as the Egyptian army continued its campaign to break up demonstrations against the removal of the country’s president. On July 26, Chief Executive Officer Chris Finlayson said “events in Egypt remain a primary concern and will continue to be so as the political, social and business environment evolves.” Brent crude oil climbed 0.8 percent to $111.07 a barrel, its highest price in more than four months.

Centamin Plc, a London-listed miner of gold in Egypt, slipped 3.4 percent to 36 pence. The army stormed two camps of supporters of former President Mohamed Mursi in Cairo and Giza. The Health Ministry said at least 525 people have died. The government announced a state of emergency lasting a month.

AstraZeneca (AZN) Plc dropped 1.7 percent to 3,192.5 pence and GlaxoSmithKline (GSK) Plc lost 1.4 percent to 1,657.5 pence as Morgan Stanley lowered its recommendation on both drugmakers to underweight, the equivalent of sell, from equal weight. The brokerage said the shares have less potential to rally further compared with their peers. GlaxoSmithKline has surged 24 percent this year, while AstraZeneca has gained 9.7 percent.

Oriflame, Imperial

Oriflame Cosmetics SA slid 6.6 percent to 202.30 kronor, its lowest price this year, after reporting earnings before interest, taxes, depreciation and amortization of 42.2 million euros ($56 million) and sales of 360 million euros in the second quarter. Analysts on average had forecast Ebitda of 46.7 million euros and revenue of 367 million euros for the period.

Imperial Tobacco Group Plc climbed 2.6 percent to 2,209 pence, its biggest gain in more than three months, as Europe’s second-biggest tobacco company said it plans to introduce an alternative to cigarettes next year. The product will provide a different way of taking nicotine.

“This is the first time Imperial has confirmed that it plans to launch something in that space next year,” said Erik Bloomquist, a tobacco analyst at Berenberg Bank in London. “It’s an important step forward for the company.”

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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