European stocks declined for a sixth week to their lowest in three years as oil surged to a record, fueling inflation, while companies from banks to retailers said a slowdown in economic growth is hurting earnings.
Michelin & Cie, the world’s second-largest tiremaker, and Volkswagen AG, Europe’s biggest carmaker, slid. Carrefour SA, the region’s largest retailer, sank to its lowest in more than five years after saying sales growth slowed. Bank of Ireland PLC fell after saying the economy is “adversely impacting” profit. Wienerberger AG led construction stocks lower on earnings.
The Dow Jones STOXX 600 Index sank 3.3 percent this week to 270.36, for the longest weekly declining streak since January. The index is down 26 percent this year as a rout led by banks trimmed more than US$11 trillion from global equities.
“The market is very nervous,” said Edouard Carmignac, chief investment officer at Carmignac Gestion, which oversees US$24 billion in Paris. “We can’t see very clearly. The increase in raw materials prices is decreasing buying power and creating inflationary pressure.”
Record oil prices, accelerating inflation and more than US$400 billion in credit-related losses threaten to push the US into recession and stifle profit growth. Earnings for STOXX 600 companies are expected to drop 2.3 percent this year, according to data compiled by Bloomberg. That compares with an estimate for a 0.7 percent decrease a month ago.
“Investors are focusing on the return of worries about the financial industry,” said Alexandre Iatrides, a fund manager at Richelieu Finance in Paris, which oversees US$6.2 billion. “There’s still the specter of a crisis. That adds to concern about the economic slowdown and the rise in oil prices.”
National benchmark indexes retreated in all of the 18 western European markets. Germany’s DAX Index fell 1.9 percent this week. France’s CAC 40 lost 3.9 percent. The UK’s FTSE 100 slipped 2.8 percent, bringing its loss from last year’s high to 22 percent. The STOXX 50 retreated 2.9 percent, and the Euro STOXX 50, a measure for the euro region, slid 2.4 percent.
The Bank of England kept its key interest rate unchanged at 5 percent on July 10, in line with economists’ predictions, as policy makers weighed the threat of Britain’s first recession in a generation against the risk of accelerating inflation.
“We expect the markets to stay lower,” Rainer Gerdau, head of equity strategy at Saxo Bank A/S, said in a Bloomberg Television interview. “It is too early for a turn-around, the recession is yet to come.”
Crude oil rose to a record on concerns that Israel may be preparing to attack Iran, while a strike in Brazil and renewed militant activity in Nigeria threaten to cut supplies. The contract for August delivery reached an all-time high of US$147.27 a barrel on the New York Mercantile Exchange.
Michelin retreated 8.2 percent. Volkswagen lost 4 percent.
Air Berlin PLC sank 18 percent. Europe’s third-biggest low-cost airline pulled out of talks to buy German charter carrier Condor from Thomas Cook Group PLC after fuel costs surged.
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