By Barbara Kollmeyer
MADRID (MarketWatch) -- European stock markets dropped Tuesday
after Swiss banking giant UBS AG's results disappointed and
guidance was less than impressive for other companies such as steel
maker ArcelorMittal.
The Stoxx Europe 600 index fell 0.3% to 266.67 in afternoon
trading. The index closed up 0.3% in the prior session.
U.S. stock futures turned weaker as key earnings reports came in
and investors awaited data. The S&P/Case-Shiller home-price
index for August is due at 9 a.m Eastern, and consumer-confidence
data for October are expected at 10 a.m. Eastern.
London stocks stayed lower after data showed that U.K.
third-quarter gross domestic product rose 0.8%, beating
expectations for a quarterly rise of 0.4%. The FTSE 100 index was
off 0.6% to 5,716.82, as mining stocks reversed prior-day gains and
individual company news depressed some key shares.
In Sweden, the central bank raised its repo rate by a quarter of
a percentage point to 1%, a move that economists had largely
expected.
Banks were in the spotlight in Europe, with shares of UBS AG
(UBS) falling 5.4%. The Swiss bank swung to a third-quarter profit,
beating forecasts, but its headline figure included some hefty
one-off items. Analysts said a pretax loss for the
investment-banking arm disappointed the market, which was looking
for a profit.
The news weighed on the banking sector overall, with shares of
Deutsche Bank AG (DB) down 1.9%.
Germany's DAX 30 index fell 0.3% to 6,616.24 in afternoon
trading. The index rose 0.5% Monday to end at 6,639.21, a new 2010
closing high and the highest closing value since June 19, 2008.
Tapped-out Europe stocks
Joel Kruger, currency strategist at Daily FX, said European
stock indexes, especially the DAX, are starting to show signs of
exhaustion as more questions have arisen in the past week over the
scope of another round of easing from the U.S. Federal Reserve.
"Equities have been supported on the expectation for more QE
[quantitative easing], which also has weakened the dollar;
therefore it stands to reason that if the degree of more QE is
called into question... then it will reverse the trend of higher
equities and lower dollar," said Kruger.
"If you look at the Relative Strength Index, anything above 70
is overbought and the DAX is closer to 73," said Kruger. "The
market is exhausted there, and it's overbought. That leaves good
reason for a short-term correction in equities. What's driving it
is a little bit of profit-taking there."
The Relative Strength Index charts strength on a current and
historical basis for a stock or a market based on the closing
prices of a recent trading period.
Another big decliner in Europe was Luxembourg-based steel maker
ArcelorMittal (MT), which reported a 48% increase in third-quarter
net income, but maintained a cautious outlook, owing to higher
material costs and muted demand. Shares fell 5.3% in Amsterdam.
Investors looking for indications of a global recovery will be
disappointed by ArcelorMittal's lack of short-term confidence and
comments on the longer term, said analysts at Collins Stewart in a
research note.
It's also "evidence of the structural challenges facing steel
producers who are being squeezed by rising raw material costs and a
lack of visibility on the demand for steel output in developed
regions," they added.
In France, the CAC-40 index fell 0.8% to 3,840.70, with shares
of luxury-goods makers LVMH Moet Hennessy Louis Vuitton SA down
nearly 3% and Hermes International SA off 10%, with both stocks
giving up some of the gains posted during the prior session.
Shares of industrial-gas producer Air Liquide SA fell 1.3%. The
company reported third-quarter revenue that inched past analysts'
forecasts.
Resource stocks off in London
In London, shares of Cairn Energy PLC tumbled 6% after the
company said it discovered no energy at two wells in Greenland and
would write off the $185 million of related costs.
It's the third disappointment in a "mixed campaign" in the
Baffin Bay region, said analysts at Killik & Co., who advised
steering clear of Cairn shares for now in a research note. They
added, though, that Cairn is in the early stages of a long-term
exploration program across a big area that could still offer
hydrocarbon discoveries.
But given that Cairn will soon be down to a small stake in its
Indian-producing assets because of a stake sale to Vedanta
Resources PLC , the company will have more of a focus on high-risk
exploration, they said.
"As a result, the share price may become more volatile," the
analysts said, also noting uncertainty surrounding the Vedanta deal
and the timing of a proposed special dividend.
Shares of ARM Holdings PLC fell 7.3%, the second-biggest
decliner in the FTSE 100. The firm reported higher pretax profit
and sales for the third quarter and said it expects growth for the
fourth. However, analysts noted a rise in operating expenses owing
partly to the impact of currencies.
Jonathan Crossfield, research analyst with Bank of America
Merrill Lynch, said in a note that ARM consensus estimates are
unlikely to go higher after the results. "Overall, these are a
solid set of numbers, but the revenue upside has been absorbed by
the higher cost base," he said.
Miners also gave back some gains from the prior session. Shares
of Eurasian Natural Resources Corp. PLC fell 3.1%, Antofagasta PLC
dropped 2.4%, and BHP Billiton PLC (BHP) fell 2.2%.