By Adam Haigh
May 21 (Bloomberg) -- Stocks in Europe and Asia retreated and U.S. index futures dropped as the Federal Reserve projected a deeper recession in the world’s largest economy and Standard & Poor’s Ratings cut the U.K.’s credit outlook.
British Land Co. declined 5.8 percent after the largest office developer in London reported a record annual loss. Mitsubishi UFJ Financial Group Inc. and Deutsche Bank AG fell as Former Fed Chairman Alan Greenspan warned U.S. lenders will need to raise “large” amounts of money. Vodafone Group Plc, the world’s biggest mobile-phone company, decreased 2.6 percent as Nomura Holdings Inc. advised selling the shares.
The MSCI World Index slid for the first time in four days, losing 0.6 percent at 12:27 p.m. in London. The gauge of 23 developed nations has climbed 38 percent since March 9 as U.S. government measures to buy illiquid assets from banks spurred speculation that the worst of the global recession is over.
“There are a lot of constraints on economic recovery.” said Bob Parker, who helps oversees $600 billion as vice chairman of Credit Suisse Asset Management in London. “For the rest of May, June, it’s highly likely that equities will trade sideways and we may even have a 5-percent-plus setback in global equity markets,” he told Bloomberg Television.
S&P lowered its outlook on the U.K.’s top-level AAA rating to “negative” from “stable” for the first time. The pound had its biggest decline in a month versus the dollar and dropped the most in two weeks against the euro.
‘Further Shocks’
Minutes from the Fed released yesterday signaled that the central bank isn’t convinced any improvements in the economy will persist. Policy makers meeting April 28-29 in Washington saw “significant downside risks” to the outlook for the economy, with the global financial system still “vulnerable to further shocks.”
Futures on the Standard & Poor’s 500 Index slipped 0.7 percent after comments from Greenspan suggested he sees a bigger capital shortfall in the banking system than reflected in regulators’ stress tests on the 19 biggest U.S. lenders.
“There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” Greenspan said in an interview after the close of U.S. markets yesterday in Washington. He also said that “until the price of homes flattens out we still have a very serious potential mortgage crisis.”
‘Pause of Breath’
Europe’s Dow Jones Stoxx 600 Index slipped for the first time in six days, losing 1.4 percent. The regional gauge had climbed 5.5 percent in the past week, driving its price-earnings ratio to 24.2, the highest in five years.
“The economic environment remains extremely tough,” said Jeremy Batstone-Carr, an equities analyst at Charles Stanley & Co. in London. “It was inevitable that there was a pause for breath after the rally,” he told Bloomberg Television.
British Land fell 5.8 percent to 390 pence. The company posted an annual loss of 3.88 billion pounds ($6.1 billion) as its properties slumped in value. The office developer was projected to have a loss of 2.96 billion pounds, according to the median estimate of five analysts in a Bloomberg survey.
Mitsubishi UFJ, Japan’s biggest bank, dropped 1.6 percent to 609 yen. The MSCI Asia Pacific Index fell 0.7 percent, trimming the 42 percent rally from a five-year low reached on March 9. Stocks included on the gauge now trade at 43 times earnings, the most expensive since 2003.
Deutsche Bank, Germany’s largest bank, slid 1.7 percent to 46.16 euros. Commerzbank AG, the second-biggest, lost 4 percent to 5.58 euros.
Vodafone Slips
Vodafone slid 2.6 percent to 115.85 pence. The company was cut to “reduce” from “buy” at Nomura, which said “earnings momentum at the core operations remains resoundingly negative.”
U.S. stocks are at the start of a bull market that may spur an 88 percent advance in the S&P 500 in the next two or three years, Laszlo Birinyi told Bloomberg Television. The benchmark index for U.S. equities may jump to a record 1,700 as the economy rebounds from the worst recession since World War II, an increase from yesterday’s close of 903.47, said Birinyi, who spent a decade on the trading desk at Salomon Brothers Inc.
ICAP Plc slumped 7.1 percent to 375.5 pence after Chief Executive Officer Michael Spencer sold 15 million of the company’s shares, including 12.7 million owned by his IPGL Ltd. unit. Spencer sold the shares on May 19 for 390 pence apiece, ICAP said.
Investec Plc slid 5 percent to 314.75 pence in London. The South African private bank posted a 25 percent decline in annual net income and cut its dividend as the value of assets dropped, bad loans increased and customer activity declined.
Earnings Decline
Per-share profits at 316 companies in Europe’s Stoxx 600 that have reported earnings since April 7 have sunk 47 percent, Bloomberg data show. That compares with a 36 percent slide in earnings at 456 companies on the S&P 500. UBS AG estimates that profits in Europe will retreat 25 percent in 2009.
ThyssenKrupp AG, Germany’s largest steelmaker, lost 2.3 percent to 17.37 euros and Salzgitter AG, the second-biggest, fell 3.4 percent to 61.51 euros. Credit Suisse Group AG cut its recommendation on global metals and mining shares to “benchmark” from “overweight,” saying growth momentum in China is “peaking.”
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
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