Wednesday, July 27, 2011

European Stocks Decline for Third Day After Clariant, Merck Miss Estimates

European stocks fell for a third day as earnings from Clariant AG (CLN) to Merck KGaA (MRK) missed estimates and U.S. politicians wrangled over the nation’s debt limit. U.S. index futures and Asian shares were little changed.

Clariant, a Swiss chemical maker, plunged 13 percent. Merck, Germany’s second-biggest drugmaker, dropped 5.2 percent as it reported an unexpected loss. PSA Peugeot Citroen tumbled 8.3 percent after saying its automotive division may post a second-half loss. Banco Santander SA (SAN) led financial shares lower after Spain’s biggest bank said profit declined as Spanish loan provisions surged.

The Stoxx Europe 600 Index slid 0.5 percent to 268.74 at 11:35 a.m. in London. The gauge has retreated 7.7 percent from this year’s high in February amid concern that Europe’s fiscal crisis will derail the economic recovery and speculation that U.S. lawmakers will fail to agree on increasing the nation’s debt ceiling by next week’s deadline.

“The earnings season has revealed that weakness in the global economy remains,” Philippe Gijsels, the head of research at BNP Paribas Fortis Global Markets, said in a phone interview from Brussels. “There have been some misses in terms of guidance and this shows us we’re in a mid-cycle slowdown with companies being held hostage by economic conditions.”

The MSCI Asia Pacific Index rose less than 0.1 percent today, while futures contracts on the Standard & Poor’s 500 Index fell less than 0.1 percent.

U.S. Rating

Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have said they may cut the U.S.’s top-level sovereign rating if officials fail to resolve the stalemate on the $14.3 trillion borrowing ceiling. The government needs to boost the cap by Aug. 2 so it can keep paying its bills, according to the Treasury Department.

“The likelihood of a U.S. sovereign-rating downgrade is around 50 percent,” Andrew Garthwaite, the London-based head of global equity strategy at Credit Suisse Group AG, wrote in a report to clients today. “If there is no increase in the debt ceiling for a prolonged period -- say 3 months -- with no agreement in sight, we believe stock markets could easily fall 15 percent.” He predicted that an agreement will be made to raise the debt limit before next week’s deadline passes.

Profit has missed estimates by an average of 3 percent for companies in the Stoxx 600 that have reported results since July 11, according to data compiled by Bloomberg. That compares with an average 7.4 percent beat for S&P 500 members in the same period, the data show.

Clariant, Merck
Clariant plunged 13 percent to 13.39 Swiss francs. Second- quarter earnings before interest, taxes, depreciation and amortization declined to 241 million francs ($301 million) from 264 million francs, the Muttenz, Switzerland-based company said. JPMorgan Chase & Co. analysts had predicted 293 million francs.

Merck unexpectedly reported a second-quarter loss and cut its forecast for full-year operating profit. The Darmstadt, Germany-based company had a loss of 84 million euros ($122 million) in the quarter, compared with net income of 187 million euros a year earlier, and said operating profit will be about 1 billion euros this year due to one-time adjustments. The stock sank 5.2 percent to 73.45 euros.

Peugeot lost 8.3 percent to 27.04 euros after Europe’s second-largest carmaker abandoned a goal of increasing second- half earnings at the automotive division.

Banks Drop
Bank stocks posted the largest decline among 19 industry groups on the Stoxx 600.

Santander retreated 2.9 percent to 7.36 euros as second- quarter profit dropped 38 percent after Spanish loan provisions surged and it set aside funds for customers mis-sold personal- loan insurance in the U.K.

UniCredit SpA (UCG), Italy’s largest bank, slid 4.2 percent to 1.23 euros. Lloyds Banking Group Plc (LLOY) declined 3.8 percent to 43.45 pence.

Meda AB (MEDAA) rallied 7.2 percent to 76.15 kronor as two people with knowledge of the matter said Valeant Pharmaceuticals International Inc. approached the Swedish company about a takeover. The approach was informal and may not lead to a deal, said one of the people, who declined to be identified because the situation is private.

Provident Financial Plc climbed 8.5 percent to 1,116 pence after the U.K.’s biggest publicly traded subprime lender posted first-half profit that beat analyst estimates as bad loans declined.

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