European Stocks Drop to Two-Year Low; Shell, Lloyds Lead Decline
European stocks declined for a second day, dragging the Stoxx Europe 600 Index to the lowest in two years, amid concern that the global economy is slowing.
Royal Dutch Shell Plc (RDSA), Europe’s largest oil company, slid 2.4 percent as crude headed for a fourth weekly loss. Volkswagen AG (VOW) dropped 2.6 percent as a gauge of auto shares slid to the lowest since September. Lloyds Banking Group Plc (LLOY), Britain’s biggest mortgage lender, fell 4.8 percent. Autonomy Corp. jumped 72 percent after the U.K.’s second-largest software company agreed to be bought by Hewlett-Packard Co. for $10.3 billion.
The Stoxx 600 lost 1.6 percent to 223.13 at the 4:30 p.m. close in London, the lowest since July 29, 2009. The gauge has tumbled 23 percent from this year’s peak in February amid concern that Europe will fail to contain its sovereign-debt crisis and that the economic recovery in the U.S. will falter.
“People fear a recession” in the U.S., Andrea Williams, who helps manage $989 million as a fund manager at Royal London Asset Management, said on Bloomberg Television. “The second fear is in Europe with the debt crisis: this political vacuum and the feeling that they’re not doing enough. That’s affecting banks. We’ve been defensively positioned.”
The Stoxx 600 has fallen 6.1 percent this week, a fourth straight weekly decline, as economic reports indicated the economy is weakening. The Federal Reserve Bank of Philadelphia’s general economic index fell more than forecast this month to the lowest since March 2009, and U.S. initial jobless-benefit claims climbed last week, according to reports yesterday. Data on Aug. 16 showed Germany grew at a slower-than-estimated pace in the second quarter.
The Stoxx 600 pared an earlier loss of as much as 3.6 percent as the European Commission said it may present draft legislation on joint bond sales by euro-area nations when completing a report on the feasibility of common debt sales, putting pressure on Germany to drop its opposition.
National benchmark indexes declined in all 18 western European markets except Iceland. France’s CAC 40 lost 1.9 percent, U.K.’s FTSE 100 slid 1 percent and Germany’s DAX dropped 2.2 percent.
The U.S. economy may expand less than previously forecast in 2011 and 2012 because of potential “political paralysis” and fiscal tightening steps, according to Citigroup Inc.
The brokerage cut its 2011 gross domestic product growth forecast to 1.6 percent from 1.7 percent and lowered its 2012 expansion estimate to 2.1 percent from 2.7 percent, Steven Wieting and Shawn Snyder, analysts at Citigroup, wrote in a report dated yesterday.
JPMorgan Chase & Co. cut its U.S. economic growth estimate for the fourth quarter to 1 percent from 2.5 percent and reduced its forecast for the first quarter of 2012 to 0.5 percent from 1.5 percent.
Bearish wagers against global stocks at hedge funds have surged to the highest level since July 2009. An index of hedge fund assets from International Strategy & Investment Group dropped to 45.8 on Aug. 16, showing the most short selling in two years, down from a 2011 high of 54.2 in February.
Investors should sell into any short-term rebound in stocks after economic data this week increased the risk of a global recession and a further selloff, according to Exane BNP Paribas. Stocks may plunge a further 40 percent from current levels and earnings per share may drop 35 percent peak-to-trough if the global economy contracts, wrote Lars Kreckel in a report to clients today.
The Standard & Poor’s 500 Index in the U.S. rose as much as 28 percent after Federal Reserve Chairman Ben S. Bernanke foreshadowed a second round of so-called quantitative easing on Aug. 27 of last year. He may announce policy intentions at a conference in Jackson Hole, Wyoming, on Aug. 26.
The Fed will extend its bond-purchasing plan, Marc Faber, publisher of the Gloom, Boom & Doom report, said in a radio interview on “Bloomberg Surveillance.”
Preferred shares of Volkswagen, Europe’s largest automaker, slipped 2.6 percent to 104.55 euros. Bayerische Motoren Werke AG (BMW) lost 3.4 percent to 52.30 euros. A measure of automakers in the Stoxx 600 fell 2.9 percent for the biggest decline in the index.
Lloyds helped lead bank stocks lower, falling 4.8 percent to 28.38 pence, its lowest price since March 2009. Deutsche Bank AG (DBK) declined 2.7 percent to 27.21 euros.
The cost of protecting European financial debt surged to an all-time high today. The Markit iTraxx Financial Index of credit-default swaps linked to senior debt of 25 banks and insurers increased as much as 12 basis points to 243, a record based on closing prices, according to JPMorgan.
Autonomy soared 72 percent to 2,452 pence, the biggest jump since at least 2000. Hewlett-Packard, the world’s largest computer maker, agreed to buy the company for $10.3 billion in cash to increase sales of cloud services for businesses while lessening its reliance on personal computers.
European software companies advanced, with the Stoxx 600 technology index rising 3 percent. Temenos Group AG (TEMN), the Geneva- based maker of banking software, jumped 5.4 percent to 14.55 francs. Software AG (SOW) climbed 5.8 percent to 28.10 euros.
Royal Ahold NV, the Dutch owner of Stop & Shop supermarkets in the U.S., slipped 3.3 percent to 8.04 euros. The stock was cut to “neutral” from “buy” at Goldman Sachs Group Inc.
Danske Bank A/S slid 5.2 percent to 77.15 kroner as Denmark’s biggest lender was cut to “equal weight” from “overweight” at Morgan Stanley.
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