If you enjoy the content at iBankCoin, please follow us on TwitterMarch 5 (Bloomberg) — European stocks and U.S. futures fell after Aviva Plc, the biggest U.K. insurer, reported a loss, China quelled speculation that the government will add to its stimulus plan and Goldman Sachs Group Inc. said the global economy is worsening. Shares in Asia advanced.
Aviva tumbled 28 percent, leading insurers lower, after maintaining its dividend despite its full-year loss. Salzgitter AG lost 11 percent as Germany’s second-biggest steelmaker said it’s “unlikely” to break even in the first half. BHP Billiton Ltd. retreated 6.6 percent after surging yesterday on speculation that an expansion of China’s stimulus would boost metal demand.
Europe’s Dow Jones Stoxx 600 Index slipped 2.2 percent to 163.88 at 12:23 p.m. in London. The gauge rebounded from a 12- year low yesterday, posting its biggest gain of 2009 on optimism China would broaden efforts to boost growth in the world’s third- largest economy. Premier Wen Jiabao said today that the country’s 8 percent expansion target for this year is within reach, indicating he doesn’t see the need to increase its stimulus.
“We are very near what could be the cycle low for the stock market but there will still be a lot of false starts,” said Steen Jakobsen, chief investment officer at Capinordic in Copenhagen. “There has been a lot of hope that China can restart the engines again” for the world economy, he said in a Bloomberg Television interview.
Goldman Sachs today predicted a deeper contraction in global gross domestic product than it previously anticipated and said the slump may worsen. London-based economist Binit Patel now expects the world economy to shrink 0.6 percent in 2009 compared with a previous forecast for a 0.2 percent contraction.
Bank of England, ECB
Stocks maintained their losses after the Bank of England reduced the benchmark interest rate to the lowest ever and said it would start purchasing 75 billion pounds ($105 billion) in assets, printing money to fight the recession. The European Central Bank is expected to reduce rates to a record low of 1.5 percent when it announces its decision today, according to economists surveyed by Bloomberg.
The euro fell to near the lowest level in three months against the dollar on speculation ECB President Jean-Claude Trichet will signal further cuts are needed to curb the deepening recession. Treasuries advanced as the decline in stocks spurred demand for the relative safety of U.S. government debt.
Futures on the Standard & Poor’s 500 Index slid 1.8 percent. The benchmark index for American equities rallied yesterday on speculation China would broaden its stimulus and U.S. lawmakers will reach agreement on a plan to stem mortgage defaults.
The MSCI Asia Pacific Index rose 0.6 percent, led by construction companies. Mazda Motor Corp., Japan’s fourth-largest carmaker, surged as the yen weakened.
MSCI World
Governments from the U.S. to Australia have sought to introduce policies to bolster their economies as a deepening global recession and dividend cuts at companies from HSBC Holdings Plc to General Electric Co. sent the MSCI World Index to a 22 percent plunge this year, the worst start since the gauge was created in 1970.
Aviva dropped 28 percent to 204.25 pence. The British insurer maintained its dividend as it reported a 2008 net loss of 915 million pounds ($1.3 billion) on writedowns of the value of its corporate bond holdings.
The dividend “is more of a concern than it is a benefit,” said Trevor Moss, an analyst at MF Global Securities Ltd. in London. “We don’t believe their solvency level is particularly strong.”
Aviva wrote down the value of its bond holdings by 8 percent. That provides “a pretty big buffer for future losses,” Chief Executive Officer Andrew Moss said in an interview with Bloomberg Television.
Debt Protection
Aviva led a surge in the cost of protecting debt sold by European insurers from default to records on concern the credit crisis is damaging their capital reserves.
ING Groep NV, the biggest Dutch financial-services company, dropped 18 percent to 2.62 euros. Friends Provident Plc, the 177- year-old U.K. insurer, declined 18 percent to 57.4 pence.
Salzgitter retreated 11 percent to 45.02 euros. The company’s pipe-making unit and other divisions won’t be able to make up for losses from rolled steel, the steelmaker said.
BHP Billiton, the world’s largest mining company, lost 7.3 percent to 1,087 pence after rallying 13 percent yesterday. Rio Tinto Group, the world’s third-biggest mining company, fell 6.1 percent to 1,734 pence. The shares yesterday jumped 14 percent.
Royal BAM Groep NV slumped 15 percent to 5.41 euros. The biggest Dutch builder posted a fourth-quarter loss and dropped sales and profit targets for this year after demand for homes deteriorated.
Profit Slump
Earnings for 252 companies in the Stoxx 600 that have reported earnings since Jan. 12 have dropped 94 percent, according to Bloomberg data. That compares to a 58 percent contraction in profit for the 465 companies that have reported results in the S&P 500 during the same period.
Michael Page International Plc decreased 3.1 percent to 195.5 pence. The U.K.’s second-largest recruitment company said full-year profit declined 4.3 percent to 97.3 million pounds as it was hurt by the global recession.
“Given the current uncertainty over the economic outlook, it is extremely difficult to predict the performance of our business in the short term,” Chief Executive Officer Steven Ingham said in a statement.
British Airways Plc dropped 4.1 percent to 129.9 pence after Europe’s third-largest airline said it sees no return to profit until fiscal 2011 at the earliest as the recession weighs on air- travel demand.
EasyJet, InBev
EasyJet Plc slipped 4.1 percent to 298 pence. Europe’s second-biggest discount airline said traffic declined 6.8 percent to 3.02 million passengers last month.
Anheuser-Busch InBev NV added 3.1 percent to 20.05 euros after the world’s largest brewer said cost reductions since the $52 billion merger last year had “exceeded expectations” so far with at least $1 billion less capital spending this year.
InBev posted a 41 percent drop in full-year profit to 1.29 billion euros ($1.63 million), missing analysts’ estimates.
Mazda soared 11 percent to 137 yen after the yen depreciated against the dollar to as much as 99.53, the weakest level since Nov. 5, from 98.44 at the 3 p.m. close of stock trading in Tokyo.
Honda Motor Co., which makes 51 percent of its revenue in North America, climbed 2.5 percent to 2,260 yen.
Ford Motor Co. dropped 5.9 percent to $1.76 in Germany. Standard & Poor’s lowered the second-biggest U.S. automaker’s rating to CC, from CCC+ after the company said it plans to reduce debt by as much as $10.4 billion through an exchange offer.
General Motors Corp. slumped 3.6 percent to $2.12. The biggest U.S. automaker said it needs “additional time in order to reflect accurately the outcome of” ongoing negotiations related to waivers of covenants in some debt agreements.
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