European stocks had the biggest weekly drop in seven as the Federal Reserve said it sees “significant downside risks” for the economy and speculation grew that policy makers will be unable to solve the debt crisis.
Mining companies led losses, with Antofagasta Plc posting the biggest weekly decline in more than 11 years, as copper fell to the lowest in a year. Stada Arzneimittel AG plunged 32 percent. Logitech International SA, the world’s largest maker of computer mice, slid 17 percent after cuttings its forecasts for the second time in two months.
The Stoxx Europe 600 Index dropped 6.1 percent to 216.19 this past week as all of the 19 industry groups declined. The gauge extended its decline from this year’s high on Feb. 17 to 26 percent amid growing concern that the global economic recovery is faltering.
“The Fed’s prior announcements had a more optimistic tone, but much has happened over the recent months,” said Nils Rosendahl, an analyst at Nordea Markets in Stockholm. “They signaled that things look bad, but that from a monetary horizon not much more can be done. It’s time for politicians to start acting as well.”
The Fed said it sees “significant downside risks to the economic outlook, including strains in global financial markets” as it unveiled plans to replace $400 billion of short-term debt in its portfolio with longer-term Treasuries. The program is known as “Operation Twist,” for its goal to bend the yield curve.
DAX, CAC 40
National benchmark indexes retreated in all of the 18 western European markets. Germany’s DAX Index declined 6.8 percent and France’s CAC 40 dropped 7.3 percent. The U.K.’s FTSE 100 slid 5.6 percent.
The Stoxx 600 is trading at about 9 times the estimated earnings of its constituent companies, near the lowest valuation since March 2009, according to data compiled by Bloomberg.
Goldman Sachs Group Inc. cut growth estimates for the U.S., the euro area and Japan, and Royal Bank of Scotland Group Plc predicted a “full-blown recession” in Europe. The world is poised for a financial crisis, Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said on Sept. 22.
China’s manufacturing may shrink for a third month in September, the longest contraction since 2009, after a preliminary index of purchasing managers showed measures of export orders and output declined. A report in Brussels showed that European services and manufacturing growth contracted for the first time in more than two years in September.
“Indicators for growth are weak,” said Trevor Greetham, head of asset allocation at Fidelity International in London. “Without a policy U-turn and action to restore confidence we are likely to see a slowdown going into 2012.”
Greece said it will accelerate budget cuts, targeting civil servants’ wages and pensioners to keep emergency loans flowing and avoid default, following two rounds of talks with the European Union and the International Monetary Fund. The policies were demanded by lenders to ensure Greece reaches deficit-reduction targets in a 110 billion-euro ($148 billion) bailout and receives a payment from the EU rescue fund, known as the European Financial Stability Facility, due next month.
“Greece has failed to meet the austerity promised and hence the chance of getting another slice of the EFSF declines,” said Nordea’s Rosendahl. “All help to Greece promised so far will just help to pay for the interest on the national debt anyhow, so the default question is now just a matter of time.”
Policy makers battling Europe’s debt crisis shouldn’t rule out issuing joint euro-area bonds and must develop tools to make that possible, even if German opposition means it can’t be done immediately, European Commission President Jose Barroso said.
“The commission believes we should look also at that option,” Barroso said in an interview on Sept. 20 at Bloomberg’s headquarters in New York. “We are not saying it is immediately. This is a matter that must be discussed, but we should not exclude that option either.”
Group of 20 finance chiefs pledged to address rising risks to the global economy. Policy makers are “committed to a strong and coordinated international response to address the renewed challenges facing the global economy,” G-20 finance ministers and central bank governors said Sept. 22. Many urged Europe to implement a July promise to expand the powers of a rescue fund, Japanese Finance Minister Jun Azumi said.
Mining Companies Sink
A gauge of mining companies in the Stoxx 600 tumbled the most since December 2008 as copper fell to the lowest in a year. Antofagasta dropped 25 percent for its largest drop since at least 1989. Vedanta Resources Plc, the largest copper producer in India, dropped 22 percent. Rio Tinto Group, the world’s second-largest mining company, slid 18 percent and larger rival BHP Billiton Ltd. fell 12 percent.
National Bank of Greece SA lost 13 percent and Alpha Bank SA lost 24 percent to 1.30 euros, its lowest price since November 1992. Piraeus Bank SA dropped 18 percent.
Moody’s Investors Service downgraded the long-term deposit and senior debt ratings of eight Greek banks by two levels. All of the banks’ long-term deposit and debt ratings carry a negative outlook.
Moody’s on Sept. 21 also downgraded the long-term credit ratings of Bank of America Corp. and Wells Fargo & Co., along with Citigroup Inc.’s short-term rating, saying U.S. support has become less likely if lenders get into financial trouble.
Barclays, Deutsche Bank
Barclays Plc, the U.K.’s second-largest bank by assets, slipped 11 percent while Lloyds Banking Group Plc lost 4.6 percent. Deutsche Bank AG decreased 7.9 percent and Raiffeisen Bank International AG retreated 20 percent, the most since November 2008.
Stada Arzneimittel sank 32 percent, its biggest drop since August 2008. The German generic-drug maker said it will post a one-off charge of about 97 million euros in the third quarter because of unpaid bills from Serbian drug wholesalers. Sebastian Frericks, an analyst at Bankhaus Metzler, cut the company’s shares to “sell” from “buy.”
Logitech fell 17 percent, the most since January 2009. The company cut its sales and operating profit forecasts for the second time in two months after reassessing its business under Chairman Guerrino De Luca acting as chief executive officer.
Deutsche Lufthansa AG, Europe’s second-biggest airline, declined 16 percent after saying operating profit in 2011 will fall short of last year’s 876 million euros. The company’s stock was cut to “sell” from “hold” at Deutsche Bank.