German stocks retreated, with the benchmark DAX Index halting its longest winning streak in almost three months, led by declines in Merck KGaA after the drugmaker unexpectedly reported a second-quarter loss.
Merck slumped the most in 10 months after also cutting its forecast for full-year operating profit. Loewe AG sank to its lowest price since 2004 after posting a loss. SAP AG climbed 1.2 percent after saying that operating profit will reach the top end of its forecast range.
The DAX dropped 1.3 percent to 7,252.68 at the 5:30 p.m. close in Frankfurt, its first decline in seven days. The gauge has retreated 3.7 percent since this year’s high on May 2 amid concern that Europe’s fiscal crisis will derail the economic recovery and speculation that U.S. lawmakers will fail to agree on increasing the nation’s debt ceiling by next week’s deadline. The broader HDAX Index also slid 1.3 percent today.
“The macroeconomic situation shows signs of weakening and the earnings season is more cloudy than previous ones,” said Markus Steinbeis, head of equity portfolio management at the Unterfoehring, Germany-based unit of Pioneer Investments KGmbH, which oversees about $221 billion globally. “The European Union summit last week hasn’t given the market a real solution and I wouldn’t be surprised if markets were testing policy makers in the coming weeks on Italy’s and Spain’s issues.”
Italy, Spain Bonds
Italian and Spanish bonds slid, increasing the additional yield that investors demand to hold the securities instead of benchmark bunds, on speculation Europe’s aid package may fail to prevent contagion. Germany’s Finance Minister Wolfgang Schaeuble said the government is against a “blank check” for the euro-area rescue fund to purchase bonds on the secondary market.
Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have said they may cut the U.S.’s top-level sovereign rating if Republicans and Democrats fail to resolve the stalemate on the $14.3 trillion borrowing ceiling.
Stocks extended losses after a report in the U.S. showed orders for durable goods unexpectedly dropped in June and inventories climbed at the slowest pace in a year, evidence that companies lost confidence in the strength of the recovery as the second quarter ended. Bookings for goods meant to last at least three years fell 2.1 percent after a 1.9 percent gain the prior month that was smaller than last reported, the Commerce Department said.
Merck slumped 4.8 percent to 73.76 euros, its largest decline since September. The company posted a loss of 84 million euros ($122 million) in the second quarter, compared with net income of 187 million euros a year earlier, and said operating profit will be about 1 billion euros this year due to one-off adjustments.
Deutsche Bank AG and Commerzbank AG, Germany’s biggest banks, declined 1.6 percent to 37.88 euros and 4.1 percent to 2.56 euros, respectively. Goldman Sachs Group Inc.’s Peter Oppenheimer cut the European bank industry to “neutral” from “overweight,” following last week’s rally.
Loewe plummeted 7.6 percent to 4.25 euros, its lowest price in almost seven years. The television maker said a target of achieving “moderate” growth in sales and positive earnings before interest and taxes for 2011 is “no longer realistic.” The company posted an Ebit loss of 4.9 million euros in the second quarter and sales fell.
SAP, the largest maker of business-management software, climbed 1.2 percent to 44.02 euros, its highest price in three months. Full-year operating profit, based on non-international financial reporting standards, will be at the high end of a previous forecast of 4.45 billion euros to 4.65 billion euros, excluding currency swings, SAP said minutes before the close of trading yesterday.
Kontron AG surged 6.2 percent to 7.56 euros after the maker of miniature computers for slot machines and drone aircraft increased its sales forecast for the year to more than 570 million euros from a previous estimate of 550 million euros “due to the continued high level of the order book position.”