Europe Stocks Drop After Biggest Weekly Rally Since March

European stocks fell the most in almost two weeks as investors assessed equity valuations following the biggest rally since March.

Sky Deutschland AG and Deutsche Boerse AG slipped at least 2.5 percent each after brokerages downgraded the shares. TeliaSonera AB and Tele2 AB advanced after the Swedish company agreed to buy Tele2’s Norwegian business. PostNL NV rallied the most in more than two years after boosting its profit forecast.

The Stoxx Europe 600 Index dropped 0.9 percent to 344.8 at the close of trading in London, with all 19 industry groups retreating. The equity gauge rose 1.8 percent last week as U.S. jobs data exceeded economists’ forecasts and commodity producers rallied. The index traded at 15.6 times the estimated earnings of its members on July 4, near its highest valuation since 2009.

“What we need to see now is earnings growth,” said Michael Kapler, a portfolio manager at Mittelbrandenburgische Sparkasse in Potsdam, Germany. “Companies have to really deliver this time because equities are not so cheap any more. We might have some sort of correction in Europe if this earnings season disappoints, and there will be bigger questions concerning valuations. Figures out of the U.S. will give investors an indication of how business is doing, although expectations are already quite high for this quarter.”

Earnings Season

Alcoa Inc., the largest U.S. aluminum producer, unofficially kicks off the U.S. quarterly earnings season when it releases second-quarter financial results after the close of trading tomorrow. Profit for members of the S&P 500 probably climbed 5 percent in the period, while sales rose 3 percent, according to analyst estimates compiled by Bloomberg.

In Germany, data from the Economy Ministry in Berlin showed industrial production slipped 1.8 percent in May.

National benchmark indexes fell in all western European markets except Iceland today. France’s CAC 40 retreated 1.4 percent, while the U.K.’s FTSE 100 lost 0.6 percent and Germany’s DAX slipped 1 percent. The number of shares trading hands in Stoxx 600-listed companies was 19 percent lower than the average of the past 30 days at this time of day, data compiled by Bloomberg showed.

Sky Deutschland dropped 4.1 percent to 6.48 euros. Nomura Holdings Inc. cut its rating on the stock to neutral from buy and lowered its full-year profit estimates for 2015, 2016 and 2017 because of higher-than-expected costs needed to increase subscribers. Nomura also said that British Sky Broadcasting Group Plc is unlikely to pay a premium for 21st Century Fox Inc.’s stake in the German broadcaster.

Deutsche Boerse

Deutsche Boerse declined 2.9 percent to 55.02 euros after Credit Suisse Group AG lowered it to underperform, the equivalent of a sell, from neutral. The brokerage said volume for exchange-traded derivatives will remain weak, and the German exchange operator will struggle to buy back shares or increase dividends in the near term.

Bolsas y Mercados Espanoles SA slid 3 percent to 34.18 euros. Credit Suisse initiated its coverage of the Spanish exchange operator with a neutral rating, citing a market-share stabilization and limited potential stock gains.

Quindell Plc fell 4.3 percent to 205.5 pence. The stock slumped 39 percent on April 22 after short-seller Gotham City Research LLC questioned the company’s profits. Let’s Gowex SA, also targeted by Gotham City, said it will file for insolvency and its chief executive officer resigned after admitting he presented false accounts for at least the past four years.

TeliaSonera, Tele2

TeliaSonera gained 1.9 percent to 50.55 kronor, as Tele2 rose 1.8 percent to 82.95 kronor. TeliaSonera will pay 5.1 billion kronor ($745 million) for Tele2’s Norwegian unit. TeliaSonera said the deal will increase its mobile-market share in Norway to about 40 percent from 23 percent while, the mobile subscription base will rise to 2.7 million from 1.6 million.

PostNL jumped 19 percent to 4.20 euros. Full-year underlying cash operating income will be 260 million euros ($353 million) to 290 million euros, higher than a previous projection for as much as 220 million euros because of a strong mail market in the Netherlands, the company said.

Nationale Suisse rallied 24 percent to 79 Swiss francs. Helvetia Holding AG said it will buy a majority stake in Nationale Suisse, valuing it at about 1.8 billion Swiss francs ($2 billion). Helvetia is bidding for all the 22.1 million shares except a 19 percent stake already owned by Helvetia and Patria cooperative. Helvetia lost 1.2 percent to 407 francs.

Enagas SA advanced 4 percent to 24.06 euros. JPMorgan Chase & Co. raised its rating on the shares to overweight, similar to a buy recommendation, from neutral. The brokerage said the Spanish government’s new gas regulation is not tougher than expected, and lower taxes will allow Enagas to maintain its dividend. Enagas predicted an annual impact of 120 million euros from the measures.

CTT-Correios de Portugal SA rose 2 percent to 7 euros as JPMorgan upgraded the postal company to overweight from neutral. The brokerage said negative sentiment toward the Portuguese market hurt the stock, and that CTT will probably report good second-quarter financial results this month.

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