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European Stocks Decline on Italian Election Deadlock

By Sofia Horta e Costa
February 26, 2013 12:19 PM EST 1 Comments

European stocks declined as Italy’s inconclusive parliamentary election renewed concern that the Mediterranean nation will dilute its austerity program and the region’s sovereign-debt crisis will deepen.

Italian shares led the retreat, with the FTSE MIB Index (FTSEMIB) tumbling 4.9 percent. Telecom Italia SpA slumped to a 15-year low as contracts to protect against a default by the country’s biggest phone company surged. SEB SA (SK) slid the most in four months after full-year net income missed estimates. BASF SE lost the most in more than nine months.

The Stoxx Europe 600 Index (SXXP) fell 1.3 percent to 284.60 at the close of trading, the biggest loss since Feb. 21. More than seven shares on the gauge dropped for every one that climbed. The Stoxx 600 has still gained 1.8 percent this year as U.S. lawmakers reached a budget compromise.

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“Italy is almost ungovernable and sometimes we get a wake- up call about that,” said Roberto Magnatantini, who helps manage about $31 billion at Banque SYZ & Co. SA in Geneva. He doesn’t own any Italian stocks. “I’m really not that optimistic about the ability of Italian politics to reinvent itself and Italians are deeply fed up and disillusioned.”

The volume of shares changing hands in Stoxx 600 companies was 27 percent higher than the average of the past 30 days, data compiled by Bloomberg showed. The VStoxx Index, a measure of euro-area volatility anticipated by options traders, surged 22 percent to the highest since Sept. 5. The Euro Stoxx 50 Index, the euro-area benchmark, fell 3.1 percent to the lowest since Nov. 28.

National benchmark indexes dropped in all 18 western European markets, except Ireland and Denmark. Germany’s DAX retreated 2.3 percent, France’s CAC 40 fell 2.7 percent, and the U.K.’s FTSE 100 slipped 1.3 percent.

Hung Parliament

Election results in Rome showed pre-election favorite Pier Luigi Bersani won the lower house by less than a half a point. Silvio Berlusconi, the former premier who has vowed to reverse austerity measures, won a blocking minority in the Senate. An Italian government requires a majority in both houses.

The group headed by Beppe Grillo, who also opposes crisis- fighting measures, got 25 percent support. Berlusconi and Grillo scored about 55 percent of the popular vote. The result may lead President Giorgio Napolitano to install an interim government to write a new election law as the prelude to another vote.

Italian 10-year government bond yields climbed 41 basis points, or 0.4 percentage point, to 4.90 percent, for the biggest advance since 1993.

U.S. Economy

In the U.S., Federal Reserve Chairman Ben S. Bernanke appeared before the Senate Banking Committee to begin his two- day semi-annual testimony on monetary policy today. Bernanke may face questions on how the Fed’s $3.1 trillion balance sheet will affect an exit from the stimulus program, remittances to taxpayers, and its ability to stabilize inflation expectations.

Confidence (CONCCONF) among U.S. consumers rebounded more than forecast in February from its weakest level since November 2011. The Conference Board’s index increased to 69.6 from a revised 58.4 in January. The median forecast in a Bloomberg survey of 76 economists called for a gain to 62.

Purchases of new U.S. houses increased to a 437,000 annual pace in January following a revised 378,000 rate in December, Commerce Department figures showed. The median estimate in a Bloomberg survey called for a pace of 380,000 last month.

Italian market regulator Consob said it’s discussing measures to control volatility by tightening limits on stock fluctuation and by holding volatility auctions, according to an official. It banned short-selling on Banca Carige SpA and Intesa Sanpaolo SpA today and tomorrow.

Eight of the 10 biggest decliners on the Stoxx 600 were shares of Italian companies, including UniCredit SpA, Intesa Sanpaolo, Banco Popolare SC and Mediobanca SpA.

Default Swaps

Telecom Italia plunged 7.3 percent to 55 euro cents, the lowest price since August 1997. Credit-default swaps insuring investors against a default by the Milan-based company climbed the highest in five months, according to data compiled by Bloomberg.

SEB SA (SK) dropped 3.5 percent to 58.94 euros after reporting full-year net income of 194.2 million euros ($254 million), missing the average analyst estimate for 206.6 million euros.

“We are approaching 2013 cautiously,” the maker of Tefal fryers said in a statement. “The economic context remains uncertain and the improvement in the environment may be very gradual.”

BASF (BAS) lost 4.5 percent to 71.66 euros, the sharpest decrease since April. Earnings before interest, tax and one-time items increased 18 percent to 1.8 billion euros in the fourth quarter, the company said today. That missed the median analyst estimate of 1.83 billion euros.

Hearing Aids

William Demant Holding A/S (WDH), a maker of hearing aids, dropped 5.6 percent to 454.90 kroner, its largest retreat since Aug. 16. The Smorum, Denmark-based company said it expects 2013 Ebit to exceed last year’s 1.65 billion ($290 million) kroner. Analysts had estimated profit of 1.99 billion kroner.

Pandora A/S added 3.8 percent to 149 kroner. The Nordic region’s biggest jewelry maker announced a plan to buy back 700 million kroner of shares this year, equal to 3.6 percent of its current market value.

Fresenius SE gained 2.8 percent to 93.50 euros, its biggest increase since Jan. 16. The German health company forecast profit will exceed 1 billion euros in 2013, one year earlier than previously estimated.

To contact the reporter on this story: Sofia Horta e Costa in London at shortaecosta@bloomberg.net

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

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