In Europe: European Stocks Decline From Two-Month High; HSBC Falls

4 July 2012

Back to reality? Seems as though “common sense is returning to the market.”

European stocks declined, dragging the Stoxx Europe 600 Index from a two-month high, as service- industry measures in the U.K. and Germany missed forecasts. U.S. index futures fell, while Asian shares advanced.

HSBC Holdings Plc (HSBA) dropped 1.2 percent as Bank of America Corp. said Europe’s largest bank will struggle to meet analysts’ estimates. Iberdrola SA tumbled 6.4 percent as utilities dropped. Chr. Hansen A/S, the maker of natural food colors and cheese cultures, climbed 10 percent after reporting earnings that exceeded estimates.

The Stoxx 600 slipped 0.3 percent to 256.59 at 12:59 p.m. inLondon, after rallying 5.2 percent over the previous three days. The index is still on course for a fifth straight week of gains, the longest stretch since January, as European leaders agreed to address flaws in their bailout programs to ease the sovereign-debt crisis and speculation grew that central banks will take steps to boost the economy.

“Seeing equities fall back after a 7 percent rise as a result of the summit meeting last week suggests that common sense is returning to the market,” said Henrik Drusebjerg, a strategist at Nordea Bank AB in Copenhagen. “If investors are hoping that tomorrow’s central bank meetings will see initiatives on top of lowering interest rates, they will be disappointed.”

The European Central Bank and the Bank of England will announce interest-rate decisions tomorrow. ECB officials will cut their benchmark rate by 25 basis points to a record low 0.75 percent, according to the median forecast in a Bloomberg survey of 62 economists. Five predict a cut of 50 basis points and 11 foresee no change.

U.S. Stocks

Futures on the Standard & Poor’s 500 Index (SPX) expiring in September declined 0.1 percent, while the MSCI Asia Pacific Index added 0.4 percent. U.S. equity markets are closed for the Independence Day holiday today.

The number of shares changing hands in Stoxx 600 companies was 34 percent less than the average over the past 30 days, according to data compiled by Bloomberg.

A U.K. gauge of services activity based on a survey of purchasing managers fell to 51.3 in June, an eight-month low, from 53.3 in May, Markit Economics and the Chartered Institute of Purchasing and Supply said. The median forecast of 25 economists in a Bloomberg survey was for a reading of 52.9. A measure above 50 indicates expansion.

A German services PMI dropped to 49.9 last month from 51.8 in May, according to a separate report from Markit.

U.S. Economy

A report on July 6 is forecast to show that U.S. employers added 90,000 people to payrolls in June, after a gain of 69,000 in May, according to a Bloomberg survey of 78 economists. Alcoa Inc., America’s biggest aluminum producer, is due to kick off the U.S. earnings-reporting season on July 9.

“If the U.S. non-farm figures on Friday add to the disappointing figures that we have seen this week it would confirm that the U.S. slowdown is really happening,” Nordea’s Drusebjerg said.

The Stoxx 600 had climbed to the highest level since May 3 after European policy makers eased repayment rules for Spanish banks, relaxed conditions for possible aid to Italy and unveiled a $149 billion economic growth plan.

“The measures to support growth and help the banks via the European Stability Mechanism are a step in the right direction but we are a long way from finding a solution,” said Felicity Smith, afund manager at Bedlam Asset Management Plc in London. “The markets are waiting to see some concrete steps.”

HSBC Drops

HSBC fell 1.2 percent to 563.7 pence as Bank of America said the bank’s targets are ambitious and analysts’ earnings estimates may be too high. Bank stocks were the second-worst performers in the Stoxx 600.

Iberdrola (IBE), an owner of wind parks from Europe to the U.S., sank 6.4 percent to 3.49 euros as a measure of utilities in the Stoxx 600 retreated 0.8 percent.

Henderson Group Plc (HGG) fell 2.1 percent to 102 pence as the fund manager was cut to equal weight, the equivalent of a hold recommendation, at Morgan Stanley.

Man Group Plc (EMG), the world’s largest publicly traded hedge fund, lost 4.9 percent to 67.40 pence, the lowest price since October 1999, as the net asset value of its Man AHL Diversified fund decreased 2.5 percent last week.

JPMorgan Chase & Co. cut its price estimate for the shares to 45 pence from 110 pence, saying the company’s second-quarter performance was disappointing. The brokerage kept its neutral recommendation on Man.

EON Downgrades

EON AG dropped 2.9 percent to 16.68 euros after analysts downgraded the shares. Germany’s biggest utility was cut to neutral from overweight at JPMorgan, while Citigroup Inc. reduced its recommendation to sell from neutral.

Chr. Hansen climbed 10 percent to 169.50 kroner in Copenhagen, the biggest gain since January. The company reported third-quarter earnings before interest and taxes that exceeded estimates and raised its full-year forecasts.

Societe Television Francaise 1 (TFI) advanced 3.7 percent to 6.77 euros. UBS AG (UBSN)upgraded the owner of of France’s most-watched television channel to buy, saying the shares look cheap.


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