European Stocks, U.S. Index Futures Retreat as German Bund Auction Fails

By Adria Cimino - Nov 23, 2011 8:38 PM GMT+0700

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Nov. 23 (Bloomberg) -- Paul Robinson, global head of foreign exchange research at Barclays Capital, talks about a survey of the bank's clients on the economic outlook and asset allocation. He speaks with Francine Lacqua on Bloomberg Television's "On the Move." (Source: Bloomberg)

European stocks declined, with the benchmark Stoxx Europe 600 Index posting its longest losing streak since August, as Germany failed to meet a bond sale target. U.S. index futures and Asian shares also retreated.

Rio Tinto Group, the world’s second-largest mining company (RIO), dropped 1.7 percent as Australia pushed a law in parliament introducing a tax on coal and iron-ore profits. Logica (LOG) Plc, an Anglo-Dutch computer services provider, slid 3.6 percent after Jefferies Group Inc. cut its recommendation on the shares. Dexia SA (DEXB) jumped 6.7 percent.

The Stoxx 600 slipped 0.3 percent to 222.72 at 1:36 p.m. in London, for a fifth day of losses. Futures on the Standard & Poor’s 500 Index expiring in December fell 0.7 percent, while the MSCI Asia Pacific Index excluding Japan lost 1.6 percent.

Germany failed to reach its maximum sales target of 6 billion euros ($8 billion) at an auction of securities due in January 2022. Total bids amounted to 3.889 billion euros, falling short by 35 percent, according to data from the Bundesbank. The securities were sold at a yield of 1.98 percent.

“This is another drip of negative news into the cup,” said David Finch, head of cross-sector research at Exane BNP Paribas in Paris. “It’s an extension of the contagion we’ve seen into more of the stable eurozone countries. It’s kind of an acceleration of risk aversion.”

In Asia, a preliminary purchasing managers’ index indicated that Chinese manufacturing will contract in November by the most since March 2009 as home sales slide, adding to evidence the world’s second-biggest economy is slowing. The reading of 48 reported by HSBC Holdings Plc and Markit Economics for November compares with a final number of 51 for October. A number below 50 indicates contraction.

Government Bonds

The European Central Bank bought Italian government bonds, according to three people with knowledge of the transactions, who declined to be identified because the trades are confidential. A spokesman for the ECB in Frankfurt declined to comment today on asset purchases.

“Volatility is something we have to live with,” said Franz Wenzel, chief investment strategist at AXA Investment Managers in Paris, which oversees $19 billion in assets. “Fears are growing that even emerging markets could face headwinds. Systemic risk still is overshadowing the eurozone. The crisis hasn’t yet been addressed properly and will continue to weigh on stocks.”

A preliminary reading of a euro-area composite index from a survey of purchasing managers in manufacturing and services rose to 47.2 in November from 46.5 in October, London-based Markit Economics said today.

U.S. Durable Goods

In the U.S., a Commerce Department report showed durable goods orders fell in 0.7 percent in October, less than forecast. Consumer spending rose less than forecast during that month as Americans used the biggest gain in incomes in seven months to rebuild savings, indicating the biggest part of the economy may contribute less to the recovery, another report from the Commerce Department showed today.

The Stoxx 600 tumbled 5.8 percent over four trading days through yesterday as Italian, Spanish and French bond yields soared, adding to concern that the debt crisis is spreading to the euro area’s larger economies.

BHP Billiton Ltd. (BHP) declined 1.1 percent to 1,746 pence. The world’s largest mining company (BLT) and other commodity producers face A$11 billion ($10.7 billion) of extra charges in the first three years of Australia’s tax on iron-ore and coal profits. Rio Tinto slipped 1.7 percent to 3,003 pence.

Logica fell 3.6 percent to 68 pence after the stock was cut to “underperform” from “hold” at Jefferies and Co.

Halfords Group Plc (HFD) dropped 3.6 percent to 319.1 pence. The shares were cut to “sell” from “neutral” at UBS, which cited the company’s limited strategic options for growth.

Dexia Shares Rally

Dexia jumped 6.7 percent to 25.5 euro cents. Luxembourg’s Finance Minister Luc Frieden said that talks about the government-backed funding of the remaining assets do not face “insurmountable difficulties.”

“I am sure that within the next days or so this deal can be concluded in a satisfactory manner,” Frieden said in an interview today in Luxembourg, referring to talks to sell Dexia Banque Internationale a Luxembourg SA to a group of investors including members of Qatar’s royal family.

Axa SA (CS) added 3.1 percent to 8.89 euros. Chief Executive Officer Henri de Castries said the company’s margins are satisfactory in most areas and it will continue to buy French government debt, in an interview on BFM Radio.

Nokia Oyj (NOK1V) climbed 1.7 percent to 4.26 euros. Nokia Siemens Networks said it plans to cut 17,000 jobs worldwide by the end of 2013 as it restructures around mobile broadband.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net