MARKET COMMENT: Europe Stocks Sink as US Fiscal Fears Weigh

Date : 11/14/2012 @ 12:50PM
Source : Dow Jones News

MARKET COMMENT: Europe Stocks Sink as US Fiscal Fears Weigh

By Sara Sjolin

LONDON--Worries over the so-called fiscal cliff in the U.S. and anti-austerity demonstrations across southern Europe kept European shares under pressure Wednesday, although strong corporate updates helped limit losses.

The Stoxx Europe 600 index dropped 0.9% to close at 268.14, the lowest level since early September.

Strikes and protests were seen across some of the region's largest countries, with labor unions organizing coordinated walkouts in Spain, Greece, Portugal and Italy.

However, investors' attention was focused largely across the Atlantic, analysts said.

"The key issue is the fiscal cliff. It would help the markets if [U.S. policy makers] would agree on some kind of solution that Congress can take forward into 2013," said Mike Lenhoff, chief strategist at Brewin Dolphin.

The fiscal cliff refers to a round of massive spending cuts and tax hikes that will automatically take effect unless Democratic and Republican lawmakers end a stalemate and strike a budget deal before year-end.

"If there's a deal it will obviously have contractionary influence on the economy because of fiscal consolidation, but it could remove some of the prevailing uncertainty that inhibits growth. That alone will help growth and may make more companies go ahead with investment intentions," he said.

Among major movers in the index, shares of Telekom Austria AG jumped 9.2% after the carrier confirmed its 2012 outlook.

And shares of Vivendi SA rose 4.7%. The French media and telecom company late Tuesday raised its full-year earnings forecast following stronger-than-expected performances by different units.

But shares of ICAP PLC sank 9.2%, after the interdealer broker reported a 26% drop in pretax profit for the six months to Sept. 30. It's "been one of the toughest periods in my 36-year career in the wholesale financial markets," said Chief Executive Michael Spencer in ICAP's earnings release.

The broader European stock markets headed south as investors took a cue from prior-day losses in the U.S., where uncertainty about the fiscal cliff overshadowed encouraging signs about the housing market.

President Barack Obama will meet with congressional leaders on Friday to begin discussions on averting the cliff, although no definite deal is expected this week, Lenhoff from Brewin Dolphin said.

"What will happen is that they'll lay out their differences and use this as an opportunity to say what their positions are. This will create an indication on where the gap lies and how to close it.

"I think they'll be laying out bargaining chips and hopefully from there be closer to reaching an agreement," he said.

A rise in U.S. business inventories accelerated the selloff in global equities in afternoon action, as the September reading showed a 0.7% jump, more than the 0.5% rise expected by analysts.

U.S. retail sales also caught investors' attention. Sales for October fell by the sharpest amount since June, hurt by Hurricane Sandy.

Stocks opened higher on Wall Street, but benchmarks traded lower at the European close.

Spain also garnered attention. Economic and Monetary Affairs Commissioner Olli Rehn reportedly said he doesn't see the need for the country to ask for a bailout in the near future and that the government has taken effective action on budget deficits for 2012 and 2013.

The IBEX 35 index (STN:XX:IBEX) lost 0.3% to 7,673.00.

Adding to the downbeat mood, industrial production data for the struggling euro zone showed activity slumped 2.5% in September, more than had been expected by analysts polled by FactSet.

And in the U.K., the Office for National Statistics said the unemployment rate from July to September was 7.8%, slightly better than expectations of a 7.9% reading.

Most U.K. shares were, however, on the decline, with Vodafone Group PLC closing down 1%.Citigroup cut its price target on the wireless carrier, citing slower growth.

Heavyweight mining firms were also on the decline. Shares of Eurasian Natural Resources Corp. fell 4.6% and those of Rio Tinto PLC lost 2.1%.

Metals prices were mixed.

Also in the U.K., shares of J Sainsbury PLC fell 2.4%, even as the supermarket chain reported a 6.7% rise in interim dividends.

The FTSE 100 index ave up 1.1% 5,722.01.

Among German stocks, E.ON AG shed 3.1%, after Societe Generale downgraded its rating on the utility firm to hold from buy. Credit Suisse, which rates the stock neutral, cut E.ON's target price to 16 euros ($20.40) from EUR18.

However, shares of Infineon Technologies AG rose 5.9% as fourth-quarter earnings topped analysts' expectations.

The DAX 30 index (ITF:DX:DAX) sank 0.9% to 7,101.92.

In France, shares of Veolia Environnement SA gained 0.5%, after Societe Generale initiated coverage of the waste and water services firm with a buy rating.

Banking shares posted broad-based losses in Paris: Shares of Credit Agricole SA lost 2% and those of Societe Generale SA gave up 1.4%.

The CAC 40 index fell 0.9% to 3,400.02.

Write to Sara Sjolin at

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