EU markets drop this week on Italy, US budget concerns


Sun, Sep 29, 2013 - Page 15

European stocks posted their first weekly decline this month as Italian bonds fell after a debt auction, while concern mounted that political wrangling in Washington will lead to a US government shutdown.

Vallourec SA slumped 9.1 percent after the supplier of tubing to the oil and gas industry said that the weak Brazilian real will hurt its profits, while bookmaker Ladbrokes PLC fell 11 percent as it said the operating profit from its digital division will fall short of analysts’ estimates.

On the opposite end of the spectrum, Telekom Austria AG rose 11 percent as a gauge of telecom shares posted the biggest gain by an industry group on the STOXX Europe 600 Index.

The STOXX 600 retreated 0.6 percent to 312.18 this week, but the equity benchmark has still climbed 5 percent this month and 9.5 percent this quarter as the US Federal Reserve unexpectedly refrained from reducing its monthly bond purchases at its last policy meeting.

The gauge has rallied 12 percent this year as the eurozone emerged from recession and central banks pledged to keep borrowing costs low to support their respective economies.

National benchmark indices declined in 14 of the 18 western European markets this week. France’s CAC 40 fell 0.4 percent, the UK’s FTSE 100 retreated 1.3 percent and Germany’s DAX slipped 0.2 percent as German Chancellor Angela Merkel’s Christian Democratic Union and its Bavarian sister party won the country’s general election on Sunday last week.

Meanwhile, Italy’s FTSE MIB Index slid 1.8 percent and bond yields jumped as borrowing costs climbed and demand fell at an auction of 10-year debt. The Italian Treasury sold 3 billion euros (US$4.1 billion) of securities maturing in 2024 at an average yield of 4.5 percent, more than the 4.46 percent yield at a previous auction on Aug. 29.

Italian stocks and bonds dropped on Thursday after former Italian prime minister Silvio Berlusconi’s allies threatened to resign from parliament if the Italian Senate votes to expel him because of his conviction for tax fraud. The coalition government in Rome relies on Berlusconi’s People of Liberty Party to pass new laws.

As European markets closed on Friday, the US Congress had yet to approve a federal budget for the new financial year starting on Tuesday.

US lawmakers have to pass an emergency budget by Oct. 1 to keep the federal government operating and increase its debt ceiling as total borrowing approaches the US$16.7 trillion limit.