Europe Stocks Sink as U.S. Growth Disappoints, Debt Talks Stall
European stocks slid, extending their weekly drop, as U.S. lawmakers called off a vote on a Republican plan to increase the nation’s debt ceiling and growth in the world’s largest economy trailed forecasts.
Veolia Environnement SA (VIE) sank 8.9 percent as the world’s biggest water utility said it plans to restructure operations and won’t meet its annual profit target. Bekaert NV, the largest maker of steel cord used in tires, tumbled 11 percent after earnings missed estimates.
The Stoxx Europe 600 Index lost 0.6 percent to 265.44 at 4:33 p.m. in London, extending this week’s drop to 2.4 percent. The gauge has fallen 2.7 percent in July as investors speculated that Europe’s sovereign-debt crisis will derail the economic recovery and concern mounted that U.S. politicians will fail to agree on the federal government’s borrowing limit by next week’s deadline. The decline has extended the index’s retreat from this year’s high on Feb. 17 to 8.8 percent.
“The disappointing economic growth indicates that the U.S. can’t afford big budget cuts without risking a second recession,” said Kai Fachinger, who manages more than $1 billion in equities at SAM Sustainable Asset Management AG in Zurich. “The weak consumer data reflect the high uncertainty among American consumers.”
U.S. gross domestic product rose at a 1.3 percent annual rate in the second quarter as household purchases rose 0.1 percent, Commerce Department figures showed today. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent expansion in the economy. Growth in the first quarter was revised down to 0.4 percent from a 1.9 percent prior estimate, reflecting fewer inventories and more imports.
“This is very negative, especially because the tactically important S&P 500 will fall below 1,295 points,” said Michael Scholz, an equity strategist at WestLB AG in Dusseldorf. “This means that the bulls failed this week with the rebound. The bears confirmed the downward move since May.”
House Republican leaders scrapped a vote on the debt ceiling bill late yesterday, indicating that House Speaker John Boehner is short of votes needed to pass his bill amid a vow by Senate Democrats to defeat the measure. The delay fueled concern that a compromise by the two parties won’t be reached before the Aug. 2 deadline for a possible U.S. default.
The Stoxx 600 pared an earlier 1.8 percent plunge as President Barack Obama said Republicans and Democrats are in “rough agreement” on their plans to raise the debt limit.
“I think investors do believe there will be a solution to the debt ceiling and that the U.S. will not default,” said Manish Singh, London-based head of investment at Crossbridge Capital, which has about $2 billion under management. “However, they don’t want to hold too much risk going into the weekend for fear of a market seizure if something unexpected happens.”
National benchmark indexes declined in every western European market, except Iceland. The U.K.’s FTSE 100 Index slid 0.5 percent and Germany’s DAX Index dropped 0.1 percent. France’s CAC 40 Index lost 0.7 percent.
In Europe, Moody’s Investors Service placed Spain’s Aa2 credit rating on review for a possible downgrade because of funding pressure and challenges faced by regional governments to meet their budget targets.
“Thrown into the current mood of crisis, it stokes up more concern, not just for Spain, but for the entire periphery,” said Padhraic Garvey, head of developed-market debt at ING Bank NV in Amsterdam. “On a day-trade it’s negative for Spain. On a structural basis this chipping away by the rating agencies is damaging for the entire periphery.”
Veolia Environnement tumbled 8.9 percent to 15.92 euros, the lowest since April 2009. The utility said it plans to restructure operations and won’t meet its target for 2011 net income growth, blaming operations in southern Europe, North Africa and the U.S. Suez Environnement Co. (SEV) declined 3.4 percent to 12.66 euros.
Bekaert fell 11 percent to 42.64 euros in Brussels trading after reporting first-half profit that missed analysts’ estimates. That’s the company’s lowest price in a year.
Sanoma Oyj (SAA1V), a Finnish publisher, slid 4.7 percent to 12.27 euros after lowering its outlook for full-year net sales and operating profit.
Schneider Electric SA (SU) fell 1.6 percent to 101.05 euros, its lowest price since October 2010. The world’s biggest maker of low-and medium-voltage equipment pared its full-year margin target as first-half profit rose less than analysts estimated because of rising raw-material costs.
Michelin & Cie., the world’s second-largest tiremaker, dropped 4.1 percent to 58.71 euros as Managing Partner Dominique Senard said raw-material cost increases might trim 400 to 500 million euros from 2012 earnings. Michelin’s first-half operating income of 971 million euros ($1.4 billion) fell short of analysts’ estimates of 990 million euros. Teleperformance (RCF), a French call-center company, plunged 14 percent to 17.88 euros, the biggest drop since 2008, after the customer-services provider said first-half net income declined to 33.3 million euros from 39.2 million euros a year earlier.
Vodafone Group Plc (VOD) limited losses in the Stoxx 600, climbing 4.4 percent to 172.70 pence, its biggest gain since March. The world’s largest mobile-phone company said it will pay a special dividend of 2 billion pounds ($3.3 billion) to shareholders in February, after the board of Verizon Wireless, in which Vodafone has a 45 percent stake, agreed to pay a $10 billion dividend.
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