German Stocks Decline as Bernanke Warns on Fiscal Cliff
German stocks fell after Federal Reserve Chairman Ben S. Bernanke said that a plan to buy $45 billion a month of Treasury securities will not offset the fiscal cliff, as lawmakers continue to debate a new budget.
Deutsche Bank AG (DBK) slid 2.7 percent as Germany’s biggest lender said fourth-quarter profit will be hurt as it reduces riskier assets and faces higher restructuring costs. RWE AG (RWE), Germany’s second-largest utility, fell 2.7 percent after Morgan Stanley cut its rating on the stock.
The DAX Index (DAX) slid 0.4 percent to 7,581.98 at the close of trading in Frankfurt, its biggest drop in a month. The gauge has still rallied 27 percent from its low on June 5 as European Central Bank policy makers agreed on an unlimited bond-purchase program and the Federal Reserve announced a third round of quantitative easing. The broader HDAX Index also fell 0.4 percent today.
“No progress in the discussion on the fiscal cliff has led to no progress on the trading floor,” Roger Peeters, chief executive officer at Close Brothers Seydler Research in Frankfurt, wrote in a note. “It seems more and more that the politicians will not find a compromise before the beginning of the Christmas holidays. This means the chance of further improvements on the trading floor before the Christmas break is limited too.”
The volume of shares changing hands on the DAX was 9 percent lower than the average of the last 30 days, according to data compiled by Bloomberg.
U.S. stocks briefly rallied yesterday after the Fed said it will buy $45 billion a month of Treasury securities starting in January to help stimulate the economy. Asset buying will continue “if the outlook for the labor market does not improve substantially,” the Federal Open Market Committee said at the conclusion of a two-day meeting in Washington. The Fed already purchases $40 billion a month of mortgage debt.
The rally faded as Bernanke said monetary stimulus cannot offset the so-called fiscal cliff, the more than $600 billion package of tax increases and spending cuts that will come into force early next year if politicians fail to agree on a new federal budget.
Democrats and Republicans remain divided on taxes and spending, as well as on whether an agreement should include an increase in the debt limit and further programs to boost the economy.
Deutsche Bank fell 2.7 percent to 33.35 euros after saying that fourth-quarter profit will be reduced “significantly” as it cuts riskier assets and faces higher restructuring costs.
The costs include valuation adjustments and charges related to global transaction banking in the Netherlands, the Frankfurt- based lender said in a statement to the stock exchange today.
RWE fell 2.7 percent to 31.04 euros as Morgan Stanley cut the stock to equal weight, the equivalent of hold, from overweight, saying that management needs to cut costs, capital expenditure and refocus its operations to improve the outlook.
ThyssenKrupp AG (TKA), Germany’s largest steelmaker, slipped 1.1 percent to 17.64 euros as Exane BNP Paribas cut its forecast price on the shares by 6 percent to 17 euros.
Merck KGaA (MRK), the maker of the cancer drug Erbitux, lost 1.1 percent to 103.05 euros. Lanxess AG (LXS), the German chemical manufacturer that joined the DAX in September, retreated 1.1 percent to 67.52 euros.
Volkswagen AG (VOW), the world’s second-biggest carmaker, gained 0.3 percent to 170.05 euros, its highest price in 20 years, as its Porsche sports-car unit moved to shore up its industry- leading profit margins by cutting the number of labor hours required to produce a vehicle.
The 3,300 workers at its car plant in the Zuffenhausen district of Stuttgart, Germany, will work 34-hour weeks by mid- 2013, an hour less than at present, while producing the same number of vehicles, Porsche said in a statement. The measures are also intended to attract prospective employees.
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