European, U.S. Stock Futures Retreat on Concern Over Budget Disagreement

By Sarah Jones - Nov 21, 2011 2:31 PM GMT+0700

European and U.S. stock-index futures dropped amid signs U.S. lawmakers may fail to reach an agreement on budget cuts, raising the prospect America may face another credit downgrade. Asian shares also fell.

Mining and energy companies may decline as metal and crude oil retreated amid signs of slowing growth in Asia. Carrefour SA (CA) might be active after the retailer’s largest shareholders were said to consider replacing its chairman and chief executive officer. The shares of UBS AG may also move.

Futures on the Euro Stoxx 50 Index expiring in December lost 0.8 percent to 2,223 at 7:28 a.m. in London. FTSE 100 Index (UKX) futures dropped 0.8 percent, while contracts on the Standard & Poor’s 500 Index declined 0.5 percent. The MSCI Asia Pacific Index retreated 1 percent.

“Markets are set to open lower as sovereign-debt worries in Europe and the U.S. weigh on sentiment,” said Jonathan Sudaria, a trader at London Capital Spreads. “Adding more uncertainty into the markets is the admission that the U.S. bipartisan ‘super committee’ has failed at finding $1.2 trillion of spending cuts.”

The deficit-cutting congressional supercommittee will probably announce that it has failed to reach agreement on federal budget savings, according to a Democratic aide in an e- mail.

Congressional Budget Office

The aide, who wasn’t authorized to discuss internal matters publicly and requested anonymity, said that it was highly unlikely that the talks could be salvaged. Today is the deadline for the Congressional Budget Office to receive a plan that it can analyze before the committee’s Nov. 23 target date for reaching an agreement. Standard & Poor’s downgraded the U.S. on Aug. 5 to AA+ from AAA.

“Given that the reasoning for the last U.S. downgrade by Standard & Poor’s was the political inability to get anything done and the soaring debt burden, it would be highly logical to expect more U.S. downgrades,” Sudaria wrote in an e-mail.

In Spain, Mariano Rajoy won the biggest parliamentary majority in an election in almost 30 years, and told Spaniards to brace for difficult times as the nation fights to avoid being overwhelmed by the sovereign-debt crisis.

Rajoy’s People’s Party swept the ruling Socialists from power after eight years, winning 186 of the 350 seats in Parliament, compared with 110 for the ruling party’s candidate Alfredo Perez Rubalcaba.

Sovereign Borrowing Costs

Stocks tumbled around the world last week as borrowing costs surged to record levels in the euro area and policy makers disagreed over their response to the spreading debt crisis. The benchmark Stoxx Europe 600 Index lost 3.7 percent as the yields on Italian and Spanish bonds climbed, and the cost of insuring against losses on the nations’ debt rose.

Greece’s new Prime Minister Lucas Papademos meets with European Union President Herman Van Rompuy and European Commission President Jose Barroso in Brussels today.

Antonis Samaras, leader of Greece’s New Democracy Party, said he won’t sign a document pledging his commitment to the Oct. 26 euro-area agreement for Greece, the Athens News Agency said.

Samaras, whose party is a member of the country’s unity government, told officials from the so-called troika of the EU, the International Monetary Fund and the European Central Bank that he has already taken five actions that show his party’s full commitment to the agreement, the agency said.

Rio Tinto, Total

Rio Tinto Group and Total SA (FP) may lead mining and energy companies lower as copper and oil fell for a third day as Japan’s exports dropped and Singapore warned its economy may grow 1 percent to 3 percent in 2012 after expanding 5 percent this year.

Carrefour may be active after people familiar with the matter said shareholders may replace the retailer’s Chairman and CEO Lars Olofsson.

Groupe Arnault SAS and Colony Capital LLC, which hold a combined 16.15 percent of Carrefour and 22.14 percent of the voting rights, will give Olofsson until the end of the year to improve the company’s performance in its domestic and largest market, said the people, who asked not to be named as the discussions are private.

The shares of UBS AG (UBSN) might move after NZZ am Sonntag reported that the bank expects outflows of as much as 30 billion Swiss francs ($32.7 billion) from its wealth business in a “worst case scenario.” The newspaper cited an interview with CEO Sergio Ermotti.

That estimate is based on the impact of tax agreements with an unspecified number of European countries, Ermotti told NZZ. UBS doesn’t intend to raise fees for clients using the same services as before to help achieve the firm’s 12 percent to 17 percent return-on-equity target, Ermotti was cited as saying.

Separately, SonntagsZeitung reported that UBS has not ruled out further cost reductions if markets worsen, citing an interview with Chairman Kaspar Villiger.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

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