European stocks fell for a second day, the first back-to-back losses this month, as investors weighed the German election result and monetary-policy statements from Federal Reserve officials William C. Dudley and Dennis Lockhart.
Banco de Sabadell SA and Barclays Plc sank more than 1.5 percent, pacing a selloff in financial stocks. National Grid Plc, the operator of energy networks in the U.K. and North America, and Metso Oyj, a Finnish supplier of mining equipment, slipped at least 1.5 percent as analysts cut their ratings. German utilities dropped as brokers said the new government is unlikely to reverse policies favoring renewable energy.
The Stoxx Europe 600 Index retreated 0.5 percent to 312.62 at the close of trading. The gauge has still surged 9.7 percent this quarter, on course for the biggest gain in four years. The measure advanced for a third week last week, extending its rally this year to 12 percent, after the Fed unexpectedly refrained from reducing its monthly asset purchases.
“We’re seeing a bit of volatility because the Fed is not communicating clearly and investors don’t know where they stand,” said Michael Woischneck, who helps oversee about $1.6 billion in equities at Lampe Asset Management in Dusseldorf, Germany. Will the U.S. central bank start paring stimulus measures “in October, December or this year at all?” he said.
Fed Bank of New York President Dudley said today that policy makers must “forcefully” push against economic headwinds as the U.S. has yet to show “any meaningful pickup” in momentum. Lockhart, the Atlanta Fed president, said U.S. monetary policy should focus on creating a more dynamic economy following a recent slowing in growth.
German Chancellor Angela Merkel’s Christian Democratic bloc won 41.5 percent of the vote in yesterday’s election. She may form a coalition with the Social Democratic opposition or the Green after her Free Democratic allies failed to take any seats in the lower house of parliament. Negotiations to form German governments usually last from four to six weeks.
“There’s also uncertainty about which German government we’ll get and when, so I can understand a bit of profit-taking today,” Woischneck said.
National benchmark indexes fell in all of the 18 western European markets, except Greece and Iceland. The U.K.’s FTSE 100 lost 0.6 percent and Germany’s DAX slid 0.5 percent, while France’s CAC 40 sank 0.8 percent.
The number of shares changing hands in Stoxx 600-listed stocks was 6.3 percent lower than the average of the past 30 days, data compiled by Bloomberg showed. The VStoxx Index, a measure of expected volatility in euro-area stocks, climbed 4.1 percent to 17.45.
Sabadell declined 1.5 percent to 1.87 euros and Barclays dropped 2.6 percent to 266.35 pence. A gauge of financial shares was the second-worst performer in the MSCI World Index as Atlantic Equities LLP forecast a drop in fixed-income trading revenue for the biggest U.S. banks.
Citigroup Inc. may post a decline in revenue of more than 10 percent, the Financial Times reported. The newspaper said the New York-based bank declined to comment.
National Grid slipped 1.5 percent to 747 pence. UBS downgraded the shares to neutral from buy, saying the price already reflects growth projections for the company. The stock trades at 14.3 times estimated earnings, compared to its five-year average of 11.7 times, data compiled by Bloomberg show.
Metso retreated 3.6 percent to 30.68 euros as Morgan Stanley cut its rating on the stock to equal weight, similar to a hold recommendation, from overweight. The brokerage cited worse-than-projected orders for mining equipment in the first half of the year.
A gauge of utilities on the Stoxx 600 fell 0.5 percent. EON SE and RWE AG, Germany’s largest, slipped 1 percent to 13.38 euros and 0.3 percent to 24.61 euros, respectively. The absence of the FDP in parliament after yesterday’s vote is negative for the utilities because the party had favored reversing the government’s pro-renewable energy policies, Citigroup analysts wrote in a report.
Infineon Technologies AG gained 1.6 percent to 7.61 euros after Boersen-Zeitung reported that the company’s full-year profit will be 20 percent greater than its forecasts amid signs of a global chip-market recovery. The newspaper cited an interview with Chief Financial Officer Dominik Asam.
Finmeccanica SpA increased 4.2 percent to 4.71 euros, its highest price in seven months, amid separate reports from La Repubblica and Corriere della Sera of bids for some of the Italian arms company’s holdings. Neither newspaper cited anyone.