Swiss Stocks Drop as Investors Watch U.S. Shutdown Talks

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Swiss stocks retreated to their lowest level since August as investors awaited the start of the U.S. earnings season and talks to end the government shutdown in the world’s largest economy.

Givaudan SA dropped 2.1 percent after Exane BNP Paribas downgraded the world’s largest maker of flavorings. Novartis AG declined 1.3 percent as a gauge of European health-care companies slipped.

The Swiss Market Index fell 0.8 percent to 7,828.24 at the close of trading in Zurich. The equity benchmark has retreated

2.4 percent so far this month as U.S. lawmakers failed to approve an emergency federal budget, partially closing the government. The broader Swiss Performance Index decreased 0.7 percent today.

“Novartis represents 19 percent of the SMI, and so is a large contributor to the down move,” Ion-Marc Valahu, a co-founder and fund manager at Clairinvest in Geneva, wrote in an e-mail. “Market participants are waiting on the markets for a break either way.”

President Barack Obama yesterday reiterated that he won’t negotiate with Republicans over conditions tied to the budget for the new financial year, which started on Oct. 1. He also said he will not discuss concessions to increase the Treasury’s borrowing authority before it breaches the $16.7 trillion debt ceiling in nine days. Senate Majority Leader Harry Reid yesterday called for a House vote on a funding plan to reopen the government without setting preconditions.

The Treasury has said that it will exhaust measures to avoid exceeding the borrowing limit on Oct. 17. If that happens, the government would run out of cash to pay all of its bills at some point between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

Earnings Season

The U.S. quarterly earnings season starts today when Alcoa Inc. releases its financial results after the close of European trading. JPMorgan Chase & Co. and Wells Fargo & Co. both report on Friday.

Givaudan declined 2.1 percent to 1,230 Swiss francs after Exane lowered the flavorings business to neutral from outperform, meaning that investors should no longer buy the shares. The company’s like-for-like growth will slow in the second half of this year, according to the brokerage. The analysts, led by Heidi Vesterinen, also cited the shares’ year-to-date performance as a reason for the downgrade. Givaudan has rallied 28 percent in 2013, while the SMI has risen 15 percent.

Novartis Slips

Novartis dropped 1.3 percent to 67.20 francs. JPMorgan Chase downgraded Europe’s largest drugmaker to neutral from overweight. The brokerage lowered its earnings-per-share estimates to 5 percent to 7 percent below consensus forecasts, predicting that the company’s most recent products will grow more slowly.

Cosmo Pharmaceuticals SpA climbed 5 percent to 63.50 francs after the U.S. awarded a patent for its Methylene Blue MMX tablets, which are designed to detect growths in the colon.

Canaccord Genuity Group Inc. increased its rating on the shares to buy from hold, forecasting a price of 73.40 francs.

Gottex Fund Management Holdings Ltd. advanced 2.1 percent to 1.94 francs. The company said in a statement that it will take an unspecified stake in Hong Kong-based Headland Strategic.

Walter Meier AG added 5.3 percent to 60 francs after the manufacturer of air-conditioning and heating equipment sold its tools business.

The volume of shares changing hands in SMI-listed companies today was 10 percent lower than the average of the last 30 days, according to data compiled by Bloomberg.