By Sarah Jones
Jan. 15 (Bloomberg) -- European stocks fluctuated and U.S. index futures slid amid speculation European Central Bank interest-rate reductions will be insufficient to stem the deterioration in profit growth.
Infineon Technologies AG dropped 6.2 percent after rival ASML Holding NV cut its first-quarter sales forecast amid an industry slump. Apple Inc. tumbled 7.6 percent in Germany after the maker of the iPod said Chief Executive Officer Steve Jobs will take a medical leave of absence until June. Europe’s Dow Jones Stoxx 600 Index drifted between gains and losses as Nestle SA led a rally in food and beverage companies.
“This market has the ability to leap all over the place. It’s going to be a very volatile time,” said Justin Urquhart Stewart, who manages about $4 billion as director of 7 Investment Management in London. The earnings season “is going to be awful, utterly dreadful,” he said in a Bloomberg Television interview.
Three stocks fell for every two that rose in the Stoxx 600, which slipped 0.1 percent to 192.76 at 1:37 p.m. in London.
Futures on the Standard & Poor’s 500 Index slid 0.8 percent as a report that showed the deteriorating economy pushed employers to cut more jobs overshadowed earnings from JPMorgan Chase & Co. that beat analysts’ estimates.
The MSCI World fell 0.7 percent. The gauge of 23 developed nations retreated 9.9 percent over the past seven days as companies from Deutsche Bank AG to Intel Corp. fuelled concern the global recession and financial crisis, which has seen banks and insurers rack up $1 trillion in credit losses and writedowns since the start of last year, are snuffing out profit growth.
Asia, Emerging Markets
The MSCI Asia Pacific Index dropped 3.8 percent to a five- week low, while the MSCI Emerging Markets Index slipped for a seventh day, the longest losing streak in more than two years.
“We will see further downside,” said Philipp Baertschi, a senior equity strategist at Bank Sarasin in Zurich. “The key reason being the earnings season has just started. We will see further downgrades on the earnings side.”
ECB policy makers lowered the benchmark lending rate by half a percentage point to 2 percent, matching the lowest rate since the ECB took charge of monetary policy in 1999.
The reduction, the fourth in as many months, was in line with the median forecast of 60 economists in a Bloomberg News survey. The rate was last at this level between 2003 and 2005. The Frankfurt-based central bank, which took charge of monetary policy in 1999, will reduce the benchmark to 1.5 percent in March, another survey of economists shows.
Infineon, Apple
Infineon Technologies, Europe’s second-largest chipmaker, declined 6.2 percent to 84 cents after ASML cut its first- quarter sales forecast after machine bookings fell amid an industry slump.
ASML, Europe’s largest maker of semiconductor equipment, said revenue will be between 180 million euros ($236.8 million) and 200 million euros this quarter. That’s down from a forecast on Dec. 18 when the company predicted sales would be as much as 250 million euros. ASML fell as much as 4.3 percent before rebounding to add 2.1 percent to 12.16 euros.
Apple lost 7.6 percent to $78.80 in Germany. Chief Operating Officer Tim Cook, who filled in during Jobs’s 2004 medical leave, has taken over Apple’s day-to-day operations, the company said in a statement. Jobs said he will remain involved in major strategic decisions.
Surgery that Jobs may be having to remove his pancreas could be the result of painful side effects from a cancer procedure, or the return of tumors he said were removed five years ago, doctors say.
17 Percent
Deutsche Postbank lost 17 percent to 9.84 euros, extending yesterday’s 17 percent slump. JPMorgan cut its recommendation on the shares to “underweight” from “neutral.”
Deutsche Post will get about 8 percent of Deutsche Bank AG as partial payment for a Postbank stake. Deutsche Bank will acquire 22.9 percent of Postbank for about 1.1 billion euros in stock in a first step and also buy 2.7 billion euros of bonds that will be converted into a 27.4 percent Postbank stake in three years.
The previous agreement, struck last September, would have given Deutsche Bank a bigger initial stake and would have required Germany’s largest bank to buy additional shares sooner.
Nestle Rally
Nestle paced advancing shares in Europe, climbing 2.4 percent to 40.26 francs. Goldman Sachs Group Inc. upgraded the world’s biggest food company to “buy” from “neutral” and added the shares to its “conviction buy” list, saying it was unlikely that the company would raise its stake in L’Oreal SA.
Separately, Royal Bank of Scotland Group Plc upgraded Nestle, Unilever Plc and Heineken NV to “buy” from “hold.”
Advantest Corp., the world’s largest maker of memory-chip testing equipment, dropped 9.8 percent to 1,213 yen. Fanuc Ltd., the world’s No. 1 maker of industrial robots, lost 4.2 percent to 5,660 yen. Hitachi Construction Machinery Co., the world’s largest maker of giant excavators, sank 9 percent to 1,006 yen.
Japan’s machine orders, an indicator of capital spending in the next three to six months, decreased 16.2 percent in November from the previous month, the Cabinet Office said today, the biggest decline since the current survey began in 1987. Economists had estimated an 8 percent slump.
Less Than Zero
The global economic recession may curb earnings growth for European companies through 2010, wiping out all of the profit gains from the second half of the decade, according to estimates from Goldman Sachs Group Inc.
The earnings rebound of 2010 will be “lackluster” following slumps of 19 percent last year and 16 percent in 2009, Goldman Sachs strategists led by Peter Oppenheimer wrote this week. Their estimate that profits will climb 8 percent next year would leave earnings growth at less than zero for European companies since the end of 2005, data compiled by Goldman Sachs and Bloomberg show.
In the U.S., earnings for all companies in the S&P 500 probably fell 20 percent in the fourth quarter of 2008, a sixth straight quarterly drop, according to analyst estimates compiled by Bloomberg. Profits are forecast to decrease in the first two quarters of 2009 before rebounding in the second half.
JPMorgan gained 4.8 percent to $27.15. The second-largest U.S. bank by assets said profit fell 76 percent to $702 million, or 7 cents a share, beating analysts’ estimates, as the company navigates the credit crisis with more success than most of its peers. Fourteen analysts surveyed by Bloomberg had an average earnings estimate of 1 cent a share.
The S&P 500 has wiped out more than half its gain since rallying from 11-year low in November, a sign the benchmark for U.S. equities may drop more.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
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