European Stocks Decline as Software AG, Espirito Santo Retreat

Jul 15, 2014 12:50 pm ET

July 15 (Bloomberg) -- European stocks declined for a sixth time in eight days, dragged lower by technology companies and household-goods shares, as investors considered comments from Federal Reserve Chair Janet Yellen.

Software AG lost 19 percent after saying earnings fell in the second quarter. Imperial Tobacco Group Plc dropped 3.7 percent after saying it will buy some brands from Reynolds American Inc. and Lorillard Inc. Banco Espirito Santo SA tumbled to its lowest price since at least 1993 as a group company faced a debt payment. PSA Peugeot Citroen gained 3.2 percent as it reiterated its financial targets and JPMorgan Chase & Co. upgraded the stock.

The Stoxx Europe 600 Index fell 0.4 percent to 338.42 at the close of trading in London. The gauge advanced 0.9 percent yesterday after dropping the most since March last week on concern over financial stress at some Portuguese banks.

“It looks like Yellen has spooked the markets,” Ion-Marc Valahu, a co-founder and fund manager at Clairinvest in Geneva, wrote in an e-mail. “Given the strong Empire manufacturing release today it seems Yellen’s testimony is too dovish and that the Fed might be behind the curve.”

Yellen told lawmakers the Fed must press on with monetary stimulus as “significant slack” remains in labor markets and inflation is still below the central bank’s goal. Rates will probably stay low for a “considerable period” after bond purchases end, which could happen following the Fed’s October meeting, she said. The central bank also said valuations for smaller social-media and biotech companies are stretched.

Economic Data

A report showed U.S. retail sales rose 0.2 percent in June from a revised 0.5 percent increase in May. The median estimate of economists surveyed by Bloomberg was for a gain of 0.6 percent. A separate release showed the New York Fed’s Empire manufacturing gauge rose to 25.6 in July, beating the median forecast of 17.

In Germany, the ZEW Center for European Economic Research said its index of investor and analyst expectations dropped to 27.1 this month from 29.8 in June. That missed the 28.2 median forecast of economists in a Bloomberg News survey. The gauge aims to predict economic developments six months in advance.

Fourteen of the 18 western-European markets dropped today, with national indexes in Spain, Italy and Portugal posting some of the biggest declines. France’s CAC 40 retreated 1 percent, while Germany’s DAX slid 0.7 percent and the U.K.’s FTSE 100 fell 0.5 percent.

The volume of Stoxx 600-listed shares changing hands today was 7 percent greater than the 30-day average, according to data compiled by Bloomberg.

Software Earnings

Software AG sank 19 percent to 20 euros. Germany’s second- largest software maker said operating profit dropped 23 percent to 45 million euros ($61 million) in the second quarter because of project delays. The company also lowered its full-year forecast.

Imperial Tobacco lost 3.7 percent to 2,638 pence. Europe’s second-biggest tobacco company is raising $7.1 billion in an all-debt deal to acquire brands such as Kool and Blu e- cigarettes, potentially assuaging antitrust concerns as Reynolds agreed to buy Lorillard.

The stock drops helped send Stoxx 600 personal and household-goods companies and technology shares down more than 1 percent each for the biggest declines among 19 industry groups.

Espirito Santo

Espirito Santo plunged 15 percent to 38 euro cents for a seventh day of drops. Rioforte Investments SA, a holding company of the troubled Portuguese group, owes 847 million euros ($1.2 billion) of short-term debt to Portugal Telecom SGPS SA, according to a June 30 regulatory filing by the nation’s biggest phone company. Rioforte holds a 49 percent stake in Luxembourg- based Espirito Santo Financial Group SA, which in turn owns 20 percent of Espirito Santo.

Spain’s Bankia SA fell 3.3 percent to 1.37 euros and Italy’s Mediobanca SpA lost 4.4 percent to 6.76 euros.

Draegerwerk AG slid 16 percent to 65.79 euros. The German maker of medical equipment cut its 2014 sales growth estimate to 2 percent to 4 percent from 3 percent to 6 percent. The company also forecast an annual margin on earnings before interest and taxes of 4.5 percent to 6.5 percent, citing a strong euro, reduced business from Russia and slower U.S. demand.

JM AB dropped 9.5 percent to 230 kronor. The Swedish builder reported second-quarter net income of 316 million kronor ($46.5 million), missing the 325 million kronor estimate of analysts in a Bloomberg survey.

Peugeot Targets

Peugeot climbed 3.2 percent to 11.46 euros, extending yesterday’s 3.1 percent gain. Europe’s second-biggest carmaker reiterated the financial targets it presented in April. Peugeot expects recurring positive operating free cash flow by 2016 at the latest, according to an e-mailed statement.

JPMorgan raised its rating on the stock to overweight, similar to a buy recommendation, from neutral, saying Peugeot’s first-half results will mark the start of a recovery in free cash flow.

Gjensidige Forsikring ASA advanced 3.6 percent to 120.90 kroner after the Norwegian insurer said pretax profit rose to 1.75 billion kroner in the second quarter from 1.08 million kroner a year earlier. Analysts on average had forecast 1.34 billion kroner. The company cited strong growth in premium and a fewer large losses.

--With assistance from Jonathan Morgan in Frankfurt.