European stocks tumbled to a two- year low as the Federal Reserve signaled “significant downside risks” to the world’s largest economy and Moody’s Investors Service downgraded three U.S. banks.
Logitech International SA (LOGN), the world’s biggest maker of computer mice, plunged 11 percent after cutting its forecasts for the second time in two months. Rio Tinto Group, the world’s second-largest mining company, sank the most in more than two years as copper fell for a fifth day. LVMH Moet Hennessy Louis Vuitton SA (MC) and Burberry Group Plc (BRBY) led luxury stocks lower.
The Stoxx Europe 600 Index sank 4.6 percent to 214.98 at 4:37 p.m. in London, the lowest since July 2009. The gauge has declined 25 percent from this year’s high on Feb. 17 on concern the global economic recovery is stalling and the European debt crisis is spreading.
“To have a chance to resolve the European debt situation, we need world growth to remain robust,” said Jean-Paul Jeckelmann, chief investment officer at Banque Bonhote & Cie. in Neuchatel, Switzerland, who helps manage $1.4 billion in equities. “Any sign that this growth is at risk will shake markets. The word ‘significant’ used by the Fed is pretty strong and is contrasting with previous declarations that were much more constructive.”
Benchmark Indexes
National benchmark indexes retreated in all of the 18 western European markets. Germany’s DAX Index declined 4.2 percent, the U.K.’s FTSE 100 slid 4.6 percent and France’s CAC 40 dropped 4.9 percent.
The Fed said it will replace $400 billion of short-term debt in its portfolio with longer-term Treasuries in an effort to reduce borrowing costs further amid “significant downside risks to the economic outlook, including strains in global financial markets.”
The central bank will buy securities with maturities of 6 to 30 years through June while selling an equal amount of debt maturing in three years or less, the Federal Open Market Committee said late yesterday after a two-day meeting. The action “should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” the FOMC said.
The Fed’s “downbeat outlook for the economy left traders fleeing from risky assets,” Jonathan Sudaria, a trader at London Capital Group, said in e-mailed comments.
Bank Downgrades
Moody’s downgraded the long-term credit ratings of Bank of America Corp. (BAC) and Wells Fargo & Co., along with Citigroup Inc.’s short-term rating, saying U.S. support has become less likely if lenders get into financial trouble.
Greece said it will accelerate budget cuts, targeting civil servants’ wages and pensioners to keep emergency loans flowing and avoid default, following two rounds of talks with the European Union and the International Monetary Fund. The policies were demanded by lenders to ensure Greece reaches deficit- reduction targets in a 110 billion-euro ($151 billion) bailout and receives a payment due next month.
“A promise of accelerating budget cuts is another attempt at buying more time,” said Manish Singh, London-based head of investment at Crossbridge Capital, which has more than $2 billion under management. “More austerity will pile on that pain and be deeply unpopular. I wonder if a quick Greek default is not a better option than long, drawn-out uncertainty and then a default.”
Economic Data
China’s manufacturing may shrink for a third month in September, the longest contraction since 2009, after a preliminary index of purchasing managers showed measures of export orders and output declined. A report in Brussels showed that European services and manufacturing growth contracted for the first time in more than two years in September.
World Bank President Robert Zoellick said the global economy has entered a critical phase, with developing countries facing growing challenges and the temptation to consider protectionist trade policies.
“The world is in a danger zone,” Zoellick said today in Washington. “Developing countries face increasing headwinds.” Zoellick also said that while he doesn’t expect the world economy will fall into a recession, his “confidence in this belief is eroded daily”
Logitech fell 11 percent to 6.95 Swiss francs, the biggest decline since April. The company cut its sales and operating profit forecasts for the second time in two months after reassessing its business under Chairman Guerrino De Luca acting as chief executive officer.
Mining Companies Retreat
A gauge of mining companies in the Stoxx 600 plunged the most since December 2008 as copper fell to the lowest in almost a year and the S&P GSCI Index of 24 commodities dropped as much as 8.9 percent.
Rio Tinto and larger rival BHP Billiton Ltd. (BHP) sank 10 percent to 3,035 pence and 8.2 percent to 1,734.50 pence, respectively. Antofagasta Plc (ANTO) fell 12 percent to 980.5 pence, the company’s biggest drop since December 2008. Kenmare Resources Plc (KMR) decreased 8.3 percent to 46.10 euro cents while Kazakhmys Plc (KAZ), the biggest copper producer in Kazakhstan, dropped 11 percent to 862.50 pence. Vedanta Resources Plc (VED) slid 11 percent to 1,142 pence.
LVMH, the maker of Celine handbags and TAG Heuer watches, tumbled 6.2 percent to 106.85 euros. Burberry, the U.K.’s largest luxury-goods maker, retreated 9.9 percent to 1,360 pence, the biggest drop since November 2008.
Banks Drop
BNP Paribas SA, France’s biggest bank, retreated 4.4 percent to 23.37 euros. Chief Executive Officer Baudouin Prot said the bank plans “significant” staff reductions at its investment-banking unit as the lender cuts total assets by about 10 percent. Societe Generale (GLE) SA, France’s second-largest by assets, slid 9.2 percent to 15.37 euros.
Lloyds Banking Group Plc (LLOY), Britain’s biggest mortgage lender, lost 9.5 percent to 32.74 pence while Barclays Plc (BARC) sank 8.9 percent to 139.55 pence. Raiffeisen Bank International AG (RBI) fell 8.4 percent to 20.25 euros.
Michel Barnier, the European Union’s financial-services commissioner, told Le Figaro in an interview that he can’t rule out the possibility that some European banks will need state aid. Barnier said in the interview that he doesn’t share the view of the IMF on the capital needs of European banks. Any necessary refinancing should preferably be carried out with private money, he added.
EADS, Bourbon
European Aeronautic Defence and Space Co. slid 7.6 percent to 20.97 euros. BNP Paribas (BNP) and Societe Generale have stopped lending to aircraft purchasers because of difficulties in obtaining dollar financing, Les Echos reported, without citing anyone. Airbus SAS may be affected more than Boeing Co., which has easier access to credit in the U.S., the newspaper said.
Bourbon SA (GBB), owner of the second-biggest fleet of supply and crew ships for the oil industry, slumped 8.1 percent to 17.88 euros as Bank of America Corp. said the growing liquidity concern around French banks “raises question marks” around financing for part of the European oil industry, adding that Bourbon is “heavily reliant on French banks financing for their fleet expansion program.”
Stada Arzneimittel AG (SAZ) plunged 9.1 percent to 17.09 euros, extending yesterday’s 19 percent plunge, after Sebastian Frericks, an analyst at Bankhaus Metzler, cut the shares to “sell” from “buy.” The company said yesterday it will have a one-time charge of about 97 million euros in the third quarter because of unpaid bills from Serbian drug wholesalers.
EasyJet Plc (EZJ), Europe’s second-biggest discount airline, rallied 9 percent to 340.2 pence, the most in two months, as the company said it will pay a dividend of 9 pence a share for the fiscal year ending in September after raising its annual profit forecast.
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