BHP, Xstrata slide after European stocks drop on recession concerns, Vedanta Resources tumble, KBC Group NV lose third quarter
European stocks fell for the first time in three days after U.S. retail sales tumbled and U.K. unemployment climbed to the highest in almost two years, heightening concern economies are slipping into recession.
BHP Billiton Ltd. dropped 15 percent and Xstrata Plc plunged 20 percent as copper retreated and concern deepened $2 trillion in funds for banks won’t be enough to stave off a global economic contraction. Vedanta Resources Plc tumbled 17 percent as the global credit crisis threatened the purchase of Asarco LLC. KBC Group NV slumped 19 percent after reporting a net loss in the third quarter.
The Dow Jones Stoxx 600 Index retreated 15.05, or 6.5 percent, to 217.17, erasing more than half of the 27.09 points it gained earlier this week in the biggest two-day rally on record. Reports today showed U.S. retail sales dropped more than forecast in September, manufacturing in the New York region sank to a record low, and U.K. unemployment climbed last month to the highest since November 2006.
“We don’t have much of a rosy outlook in terms of global growth next year, that is what is worrying markets,” said Christian Gattiker, Zurich-based head of equity research at Bank Julius Baer & Co., in a Bloomberg Television interview. “We have much more to go in terms of earnings deterioration.” Parent company Julius Baer Holding AG has about $328 billion.
National benchmark indexes slid in all 18 western European markets. The U.K.’s FTSE 100 lost 7.2 percent as Rio Tinto Group retreated. France’s CAC 40 decreased 6.8 percent, led by Total SA as crude oil dropped below $75 a barrel. Germany’s DAX declined 6.5 percent as Siemens AG tumbled.
Pessimism Soars
Pessimism on stocks soared to an all-time high as a growing conviction the global economy is in a recession spurred investors to shun commodity shares, a Merrill Lynch & Co. survey showed.
Confidence in the global economy plunged in October, according to the Bloomberg Professional Global Confidence Index. The measure fell to the lowest reading on record.
The Stoxx 600 has lost 40 percent this year as concern the seizure in credit markets will trigger a global recession erased $25 trillion in value from stocks worldwide. Financial firms reported $637 billion in losses and writedowns from mortgage- related investments since the beginning of 2007.
The benchmark rallied 13 percent in the previous two days as governments and central banks worldwide announced bailouts and funding to unfreeze credit markets and prevent the collapse of the global banking system. The gauge has fallen by 6 percent or more in four separate trading days this month.
The Bush administration said yesterday it was investing $250 billion to purchase stakes in U.S. financial companies.
Measures Not Sufficient
The injection in banks won’t stop stock prices from falling because “nobody” believes the measure is sufficient, Japanese Prime Minister Taro Aso said in parliament, responding to a lawmaker’s question about his plans to help limit the global crisis.
Money-market rates fell for a third day as the European Central Bank, Bank of England and Swiss National Bank offered lenders unlimited U.S. currency for the first time in a coordinated effort. The cost of borrowing in dollars for three months in London declined today to 4.55 percent from 4.64 percent, the British Bankers’ Association said.
The dollar Libor-OIS spread, a gauge of demand for cash, narrowed 6 basis points to 333 basis points. That’s still more than triple the level of 105 basis points on Sept. 15. The spread was 24 basis points on Jan. 24.
Sales, Unemployment
“The turmoil in global financial markets poses a serious and direct threat to the well-being of all citizens of the global economy,” Federal Reserve Bank of San Francisco President Janet Yellen said in a speech to the Silicon Valley Chapter of Financial Executives International. She said the world’s largest economy is already in a recession.
Most economists surveyed by Bloomberg News this month agree the economy is shrinking.
The U.S. Commerce Department said sales at U.S. retailers dropped by 1.2 percent in September, more than the average forecast of a 0.7 percent decline in a Bloomberg survey. The Federal Reserve’s index of New York manufacturing slumped to minus 24.6.
Claims for jobless benefits in the U.K. increased 31,800 to 939,900, the Office for National Statistics said.
BHP Billiton, the world’s largest mining company, declined 15 percent to 916 pence. Xstrata, the fourth-biggest copper producer, sank 20 percent to 1,058 pence.
Copper, lead, tin and nickel prices slid on the London Metals Exchange.
Rio Tinto Group, battling a $86 billion takeover bid from BHP Billiton, may delay the planned sale this year of $10 billion of assets because of the global financial crisis. The shares lost 17 percent to 2,357 pence.
Vedanta
Vedanta fell 17 percent to 746 pence. Lawyers said the $2.6 billion purchase of bankrupt copper producer Asarco by Sterlite Industries (India) Ltd., a unit of London-based Vedanta, won’t be completed after Sterlite told Asarco to cut its asking price.
The credit crisis has increased borrowing costs as declining metal prices hurt the outlook for earnings, thwarting acquisitions and expansions.
Total, Europe’s third largest oil producer, lost 6.9 percent to 36.56 euros as crude fell as much as $4.06, or 5.2 percent, to $74.57 a barrel on the New York Mercantile Exchange.
KBC, Belgium’s biggest financial-services company by market value, slumped 19 percent to 37.98 euros. The preliminary third- quarter net loss of 880 million euros ($1.2 billion) to 930 million euros includes a 1.6 billion-euro pretax writedown on collateralized debt obligations, the company said.
Slashing Estimates
Analysts slashed earnings estimates this year as credit- related losses accelerated and the global economy cooled. Profit at companies in the Stoxx 600 are forecast to drop 3.6 percent this year, compared with 11 percent growth forecast at the end of last year, based on data compiled by Bloomberg. Earnings for S&P 500 companies will decline 3.1 percent in 2008, compared with a 15 percent increase predicted in December 2007, the data show.
“Recession beckons,” David Buik said in a Bloomberg Television interview in London. “There is a realization that the relief rally is over.”
The Stoxx 600 was valued at 8.5 times earnings of companies in the index last week, the cheapest on record, and climbed to 9.7 times profit yesterday. The MSCI World Index traded at 11 times the earnings of its 1,730 companies on Oct. 10, the lowest on record, and closed yesterday at 12.2 times profit.
Siemens and Lafarge SA led declines among companies that made more than one-fifth of sales in the U.S. last year. Siemens, Europe’s largest engineering company, fell 14 percent to 46.30 euros. Lafarge, the world’s biggest cement company, dropped 11 percent to 57.96 euros.
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