Wednesday, 9 October 2013

European Stocks Decline Amid U.S. Budget, Debt Gridlock

By Jonathan Morgan - Oct 9, 2013 1:15 PM GMT+0400

European stocks were little changed after two days of declines, amid concern that the impasse over the U.S. budget and debt limit may lead to a default. U.S. index futures rose, indicating the benchmark gauge will rebound from yesterday’s biggest drop in six weeks. Asian shares also gained.
Alcatel-Lucent SA (ALU) slid 6.2 percent after French Prime Minister Jean-Marc Ayrault said the network-equipment maker’s restructuring plans won’t be approved without an agreement limiting job cuts. Cie. de Saint-Gobain (SGO) SA fell 3.3 percent as Morgan Stanley cut its rating on Europe’s biggest supplier of building materials. Taylor Wimpey Plc rose 3.2 percent as Goldman Sachs Group Inc. added it to a conviction buy list.
Oct. 9 (Bloomberg) -- Gareth McCartney, managing director at UBS AG, discusses the U.S. shutdown, the outlook for European equities and initial public offerings. He speaks with Anna Edwards and Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)
The Stoxx Europe 600 Index slipped 0.1 percent to 306.49 at 10:12 a.m. in London. The benchmark has fallen 1.1 percent this week after U.S. House Speaker John Boehner said he will attach conditions before backing a bill to raise the federal borrowing limit and as the first shutdown of the federal government in 17 years continues. Standard & Poor’s 500 Index futures climbed 0.3 percent and the MSCI Asia Pacific Index added 0.3 percent.
“Investors’ patience with U.S. politicians changed,” Henrik Drusebjerg, who helps oversee $220 billion as a senior strategist at Nordea Bank AB in Copenhagen, said by telephone. “Faith has been diminished. Whatever comments we get from the negotiations, they don’t seem to be any closer to a political solution.”
President Barack Obama said yesterday that the U.S. economy risks a “very deep recession” if Congress doesn’t raise the debt ceiling. He spoke after calling Boehner to “reiterate that he won’t negotiate on a government-funding bill or debt-limit increase,” said Brendan Buck, a Boehner spokesman.

Tentative Steps

Still, lawmakers began taking the first tentative steps toward a path to raising the limit even as the rhetoric grew more divisive. Senate Democrats plan a test vote before the end of this week on a measure that would grant Obama authority to raise the ceiling, probably for a year, unless two-thirds of both chambers of Congress oppose.
The Treasury has said that it will exhaust measures to avoid exceeding the borrowing limit on Oct. 17. If that happens, the government will run out of cash to pay all of its bills at some point between Oct. 22 and Oct. 31, according to the Congressional Budget Office.
“The shutdown overshadows all other topics,” Soeren Steinert, who helps manage about $24 billion as associate director for equities trading at Quoniam Asset Management GmbH inFrankfurt, wrote in an e-mail. “Fear is increasing every day a little more because of a possible U.S. default and that hits sentiment. Markets are listening to every small comment from Democrats and Republicans and uncertainty is very high.”

Yellen Nominated

Obama will nominate Janet Yellen as chairman of the Federal Reserve, which would put the world’s most powerful central bank in the hands of a key architect of its unprecedented stimulus program and the first female leader in its 100-year history.
Obama will announce the nomination at 3 p.m. today in Washington, a White House official said in an e-mailed statement. Yellen, 67, would succeed Ben S. Bernanke, whose term expires on Jan. 31.
Alcoa Inc., (AA) the largest U.S. aluminum producer, reported better-than-expected quarterly earnings yesterday after its smelting business returned to profitability and results improved at a unit that makes auto and aerospace parts.

Alcatel-Lucent Cuts

Alcatel-Lucent slid 6.2 percent to 2.60 euros. French Prime Minister Jean-Marc Ayrault said he wanted negotiations to limit job cuts. “If there is no accord, this restructuring won’t be approved,” he said on Europe1 radio.
Alcatel said on Oct. 8 that it will eliminate 10,000 jobs as Chief Executive Officer Michel Combes accelerates a 1 billion-euro ($1.4 billion) cost-cut plan to revive the unprofitable company.
Saint-Gobain dropped 3.3 percent to 36.99 euros. Morgan Stanley cut its rating on the stock to underweight, similar to a buy recommendation, from equal weight, saying it doesn’t see a recovery yet in the European building industry and the contribution from emerging markets will slow.
PSA Peugeot Citroen (UG) added 0.9 percent to 12.43 euros. China’s Dongfeng Motor Corp. will buy a stake in Europe’s second-largest carmaker for 10 billion yuan ($1.6 billion), China Business News reported yesterday, citing an unidentified official from the Chinese automaker. Talks are at an early stage, according to the person.
Wimpey advanced 3.2 percent to 101.9 pence. Goldman added the U.K.’s second-largest homebuilder by volume to its conviction buy list, citing its exposure to the domestic housing-market recovery.
To contact the reporter on this story: Jonathan Morgan in Frankfurt at
To contact the editor responsible for this story: Andrew Rummer at