Earnings and Outlook Worries Drag European Indexes Lower

Arthi Gupta
26 Oct, 2010
New York City

The European indexes declined after UBS reported a loss in its investment banking division and on a weaker outlook from Vestas Systems and ArcelorMittal. German import price inflation rose in September and French consumer confidence improved. Sweden’s Riksbank raised key rate to 1%.

[R]4:00 PM Frankfurt � The European indexes declined after UBS reported a loss in its investment banking division and weaker outlook from Vestas and ArcelorMittal. German import price inflation rose in September. French consumer confidence improved. Sweden�s Riksbank raised key rate to 1%.[/R]

European markets closed lower after weaker than expected earnings and outlook for the rest of the year. Arcelor Mittal gave a cautious outlook for the current quarter and UBS AG reported weaker revenues in its core investment banking unit and Vestas laid off 3,000 staff after revenues declined.

U.S. markets dropped and Asian markets traded mixed.

Swiss consumer demand declined in September. Sweden PPI and trade surplus increased in September. Dutch industrial confidence rose unexpectedly in October.

The European Commissioner for Economic and Monetary Affairs Olli Rehn said at a conference in Brussels that European Union nations should accelerate the implementation of reforms to reinvigorate growth.

Furthermore, he said euro-zone should give emphasis on a strong pre-emptive and preventive framework of economic governance in order to ensure normal functioning of the financial markets.

In Paris CAC 40 Index decreased 45.23 or 1.17% to close at 3,824.77 and in Frankfurt DAX Index edged lower 51.42 or 0.77% to close at 6,587.89.

An indicator of consumer morale among Germans was unchanged in November, reports said citing data from market research group GfK. The forward-looking consumer sentiment indicator, based on a survey of about 2,000 Germans, held steady at 4.9.

German import prices rose 9.9% annually in September, following an 8.6% increase in August, according to the Federal Statistics Office.

The index of import prices, excluding crude oil and mineral oil products, was 8% above the level of a year earlier. At the same time, export prices advanced 4.6% annually, which was the highest annual price increase since May 1982.

French consumer confidence rose to minus 34 in October, from minus 35 in September, according to the statistics office Insee.

The UBS consumption indicator for Switzerland fell in September suggesting that consumer demand deteriorated in the month. The index dropped to 1.70 in September from August revised reading of 1.95.

The Swedish central bank decided to raise its key interest rate by a quarter percentage point to 1% at the end of its two-day monetary policy meeting. This marks the third rate rise in as many meetings. The rate hike is designated to bring inflation close to the 2% target.

Riksbank also sharply raised its 2010 growth forecast for the Swedish economy to 4.8% from September''s 4.1% projection, noting strong confidence and employment conditions. The growth prediction for 2011 was raised to 3.8% from 3.5%.

Sweden''s foreign trade in goods resulted in a net trade surplus of SEK 8.1 billion in September 2010, as against a net trade surplus of SEK 4.7 billion recorded in September 2009, Statistics Sweden said today.

Swedish annual producer price inflation increased more than expected in September. Producer price index for home sales grew 3.2% annually in September. On a monthly basis, producer prices rose 0.4% in September. Price index for home sales increased 0.6% and prices for domestic supply, rose 0.5% in September.

Annually, the import price index and export price index grew 2.1% in September. On a monthly basis, export and import price index increased 0.3% and 0.4% respectively in September.

Dutch industrial confidence rose unexpectedly with industry leaders becoming more optimistic over the position of stocks of finished products. The Central Bureau of Statistics said the producer confidence index rose to 0.5 in October from -0.1 in September.

Spanish mortgage lending increased 4.9% in August from the same period of previous year, the statistics agency INE said today. At the same time, it fell 10.3% from July. Mortgage lending in August totaled �6.1 billion.

Cairn Energy said it would write off the $185 million cost of two wells after they failed to make any commercial discoveries.

Gainers & Losers

ArcelorMittal gained 0.78% to $34.81 after the global steel producer said third quarter sales soared 30% to $21.04 billion, versus $16.17 billion in the last year quarter. Net income in the quarter, based on IFRS basis rose 48% to $1.35 billion, compared to net income of $910 million in the prior-year period. Basic earnings per share were $0.89, versus $0.60 in the same period last year boosted by higher production and shipments.

The company said its outlook for the fourth quarter remains cautious as the expected higher input prices continue to work through the business and demand remains muted, though with some regional differences.

ARM Holdings plc slumped 7.76% to 359.00 pence after the technology company reported third quarter IFRS profit of �14.8 million or 1.1 pence per share compared to �6.89 million or 0.5 pence per share last year.

Luxottica Group S.p.A. fell 4% to $28.57 after the eye-wear manufacturer reported third quarter net sales rose 20% to �1.46 billion, compared to �1.22 billion in the prior-year quarter. Net income in the quarter surged 35% to �101.93 million or �0.22 per share from �75.78 million or �0.17 per share in the previous year, helped primarily by higher revenues across geographic and operating segments as well as an improvement in margins.

Sanofi-Aventis S.A. declined 0.60% to �49.57 after the pharmaceutical company reported the beginning of a multinational Phase III study evaluating the efficacy and safety of two doses of once daily teriflunomide versus placebo in patients with relapsing multiple sclerosis treated with interferon beta.

Technip S.A. declined 2.44% to �61.06 after the oilfield services group said it has been awarded by Ghana National Petroleum Co. a lump sum contract for phase 1 of the Natural Gas Transportation and Processing project, 60 kilometers offshore Ghana.

UBS AG dipped 0.06% to $17.92 after the Swiss banking giant reported third quarter net profit attributable to shareholders of Sfr1.65 billion or Sfr0.43 per diluted share, compared to a loss of Sfr564 million or Sfr0.15 per share in the prior-year quarter, due to a rebound in trading revenues.

The company said its wealth management unit and Swiss Bank saw net new money inflows for the first time since 2008. Investment banking unit recorded a pre-tax loss of Sfr406 million compared with a pre-tax profit of Sfr1.314 billion in the second quarter, reflecting subdued client activity levels and low market volumes.

Vestas Wind Systems A/S plunged 8.20% to DKK 183.60 after the maker of wind turbines reported third quarter revenues decreased 5% to �1.72 billion from �1.81 billion in the prior year. Profit in the quarter declined 24% to �126 million from �165 million in the year-ago quarter, mainly hurt by lower revenues.