European Stocks Decline as Munich Re Misses, Draghi Warns

Aug. 7 (Bloomberg) -- On today’s “Single Best Chart,” Scarlet Fu examines the balance sheets at four major central banks. (Source: Bloomberg)

European stocks fell to their lowest level in more than three-and-a-half months as European Central Bank President Mario Draghi warned that geopolitical risks in countries such as Ukraine could hurt the economic recovery, while Munich Re’s earnings missed forecasts.

Munich Re slipped 2.3 percent. Adidas AG lost 4.5 percent after cutting its profit forecast for 2014. Commerzbank AG rose after saying second-quarter profit more than doubled as it shed unwanted assets. Nestle (NESN) SA added 3.4 percent after it announced plans for a share buyback as first-half revenue growth beat analysts’ estimates.

The Stoxx Europe 600 Index retreated 0.7 percent to 326.96 at the close of trading, for a second day of declines. The benchmark posted its first back-to-back monthly losses in two years in July as the crisis in Ukraine escalated. The measure has fallen 6.5 percent from a six-year high on June 10.

Waging Financial War

“There is still uncertainty,” Soeren Steinert, who helps manage about $26 billion as associate director for equities trading at Quoniam Asset Management GmbH in Frankfurt, wrote in an e-mail. “We’ve seen disappointing results today, notably Munich Re, and disappointing macro-economic numbers this morning from Germany. People are cautious about taking new positions.”

German industrial output expanded in June less than forecast as Europe’s largest economy came under pressure from political tensions with Russia. Production (GRIPIMOM), adjusted for seasonal swings, rose 0.3 percent from May, when it shrank a revised 1.7 percent, the Economy Ministry in Berlin said. Output missed the average economist prediction of a 1.2 percent gain.

Draghi Comments

The European Central Bank held its benchmark rate at 0.15 percent today. Shares declined afterDraghi said the risks to the recovery from conflicts including that in Ukraine are increasing.

“Heightened geopolitical risks, as well as developments in emerging-market economies and global financial markets, may have the potential to affect economic conditions negatively,” Draghi said at a press conference in Frankfurt today after the rate announcement.

The Bank of England’s Monetary Policy Committee also kept its key interest rate unchanged at a record-low 0.5 percent today.

National benchmark indexes declined in 16 of 18 western European markets. The U.K.’s FTSE 100 Index fell 0.6 percent, France’s CAC 40 slid 1.4 percent, and Germany’s DAX dropped 1 percent. The volume of shares changing hands in Stoxx 600-listed companies was 16 percent higher than the 30-day average for this time of day, according to data compiled by Bloomberg.

Weak Market

“This weak market is because investors are locking in profits and fearing that the long overdue correction will hit and volatility will rise all at once,” Daniel Weston, a portfolio manager at Aimed Capital GmbH in Munich, wrote in an e-mail. “Investors don’t want to be caught in that trap.”

Russia banned a range of food imports from the U.S. and Europe. The restrictions include all cheese, fish, beef, pork, fruit, vegetables and dairy products, Prime Minister Dmitry Medvedev said today in Moscow. The curbs are targeted at nations that have imposed or supported sanctions against Russia and also include Canada, Australia and Norway.

In the U.S., Labor Department data showed that fewer Americans filed applications for unemployment benefits last week, sending the average over the past month to an eight-year low. Jobless claims fell by 14,000 to 289,000 in the week ended Aug. 2 from 303,000 in the prior period. The median forecast of economists surveyed by Bloomberg called for an rise to 304,000.

Munich Re

Munich Re slid 2.3 percent to 148.95 euros. The world’s biggest reinsurer said second-quarter net income advanced to 765 million euros ($1 billion) from 528 million euros a year earlier, helped by higher investment income. That compared with the 798 million-euro average estimate of analysts surveyed by Bloomberg. Major claims in the quarter rose to 617 million euros from 605 million euros. The biggest natural-catastrophe cost was a 180 million-euro loss tied a February snowstorm in Japan.

Adidas lost 4.5 percent to 55.50 euros. The world’s second-biggest sports-gear maker cut its profit forecast for 2014 after first-half revenue in North America dropped amid a decline in demand for golf equipment. Operating profit will total 6.5 percent to 7 percent of sales, rather than the 8.5 percent to 9 percent range previously estimated.

Beiersdorf AG fell 1.8 percent to 65.97 euros. The maker of Nivea body wash reported first-half organic sales growth of 5 percent as revenue in western Europe advanced less than in other markets. That missed the median analyst estimate of 5.9 percent.

Telecom Italia

Telecom Italia SpA (TIT) rose 1.1 percent to 81.2 euro cents after people familiar with the matter said it is pursuing an alliance with Vivendi SA (VIV) that could lead to the French media company acquiring a significant stake in Italy’s largest phone carrier. Vivendi fell 0.9 percent to 19.29 euros.

Commerzbank added 0.5 percent to 10.46 euros, paring earlier gains of as much as 4.5 percent. Germany’s second-biggest bank said net income rose to 100 million euros from 40 million euros a year earlier. Analysts had called for a 127 million-euro profit. The lender also said it will cut unwanted assets to around 67 billion euros by the end of 2016, more than a previous target of 75 billion euros. Provisions for bad debt in 2014 will be “well below” the 2013 level, it said.

Nestle rose 3.4 percent to 69.40 Swiss francs. The world’s largest food company will spend 8 billion francs ($8.8 billion) in its first share buyback in three years. Revenue gained 4.7 percent excluding acquisitions, divestments and currency shifts, the company also said. That beat the median analyst estimate for 4.5 percent growth.

Zurich Insurance

Zurich Insurance Group AG (ZURN) climbed 2.4 percent to 266.80 francs. The biggest Swiss insurer said second-quarter operating profit rose 32 percent from a year earlier to $1.24 billion. Earnings from general insurance, its biggest business, surged 44 percent as losses from natural catastrophes dropped to $175 million from $435 million, it said in a statement.

Aviva Plc (AV/) climbed 2.6 percent to 502.5 pence. The U.K.’s second-biggest insurer by market value reported a 4 percent increase in operating profit to 1.05 billion pounds ($1.76 billion). That beat the 1.03 billion-pound average prediction of analysts provided by the company. The insurer also increased its interim dividend 4.5 percent to 5.85 pence a share.

To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net

To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net Alan Soughley

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