European Stocks Drop as Commodities Extend Rout; BHP, Rio Slide

May 12, 2011, 7:35 AM EDT By Sarah Jones

May 12 (Bloomberg) -- European stocks dropped for the first time in three days, as commodities extended yesterday’s rout and insurance companies fell. U.S. index futures and Asian shares also retreated.

BHP Billiton Ltd. and Rio Tinto Group lost more than 3 percent after copper slumped to a five-month low and crude fell below $98 a barrel. Insurers declined as companies from Allianz SE to Aegon NA reported earnings. Thales SA dropped 4.1 percent on a report that the company may make a cash contribution as part of an asset swap with Safran SA.

The benchmark Stoxx Europe 600 Index retreated 1.1 percent to 280.6 at 12:08 p.m. in London for the biggest drop in a week. The gauge yesterday increased for a second day as companies from A.P. Moeller-Maersk A/S to Hermes International SCA posted results that topped estimates. Standard & Poor’s 500 Index futures lost 0.5 percent today.

“It’s a pretty tense trading session today with European markets under pressure after a weak Asian market and early forced selling in commodities,” said Lex van Dam, a London- based fund manager at Hampstead Capital LLP, which oversees $500 million. “Asian markets have been trading badly for the last six months and it feels that this might be spreading to Europe.”

The MSCI Asia Pacific Index extended yesterday’s selloff in the U.S., slipping 1.6 percent today. The benchmark gauge has climbed 3.1 percent over the last six months, while the Stoxx 600 has risen 7.6 in dollar terms.

U.S. stocks dropped the most since March 16 yesterday after commodities tumbled amid a strengthening dollar and concern that accelerating global inflation may curb economic growth. China today raised bank’s reserve requirements by 0.5 percentage points with effect from May 18.

Earnings Season

Thirty-two companies on the Stoxx 600 are scheduled to report results today. Of the 272 companies in the gauge that have reported earnings since April 11, 59 percent have beaten analyst forecasts for per-share profit, according to data compiled by Bloomberg. That compares with 72 percent of U.S. companies in the same period.

A U.S. Commerce Department report today may show that retail sales climbed in April as employment accelerated. Figures from the nation’s Labor Department may show fewer workers filed claims for jobless benefits last week, while wholesale costs rose. All three reports are scheduled for release at 8:30 a.m. in Washington.

BHP, the world’s largest mining company by market value, and Rio Tinto, the third-biggest, led commodity shares lower. BHP dropped 3.1 percent to 2,331 pence and Rio slid 3.3 percent to 4,047 pence. Anglo American Plc lost 3.4 percent to 2,889 pence.

Copper, Oil Slide

Copper tumbled to a five-month low as speculation mounted that China may continue monetary tightening after inflation spread beyond food, damping the demand outlook in the world’s largest consumer of the metal. Aluminum and zinc also retreated.

Crude oil extended yesterday’s 5.5 percent selloff, falling 2.3 percent to $95.96 a barrel in New York today. The contract dropped yesterday after the U.S. Energy Department reported a surge in stockpiles last week.

Allianz slid 2.5 percent to 99.11 euros after Europe’s biggest insurer posted a 45 percent drop in first-quarter net income to 857 million euros ($1.2 billion) on natural-disaster claims and lower investment gains.

Operating profit at the property and casualty unit, Allianz’s most important in terms of earnings, dropped 6.9 percent to 663 million euros. The company on May 4 predicted that it will face claims of about 320 million euros from the earthquake and subsequent tsunami in Japan.

Aegon, RSA Insurance

Aegon sank 5.6 percent to 5.07 euros after the Dutch insurer reported a 12 percent drop in first-quarter profit to 327 million euros as it posted lower investment gains. Earnings missed the 337 million-euro average estimate of 11 analysts surveyed by Bloomberg.

RSA Insurance Group Plc slid 1 percent to 138.4 pence. The U.K.’s biggest non-life insurer by market value said first- quarter sales rose 8 percent on growth in emerging markets. RSA posted net written premiums of 2.1 billion pounds ($3.4 billion) in the three months to March 31.

Thales sank 4.1 percent to 28.98 euros after Les Echos reported that the company may make a cash contribution of as much as 500 million euros as part of a possible asset swap with Safran. The newspaper cited an unidentified person familiar with the talks.

Thales, Europe’s largest defense-electronics producer, posted first-quarter revenue of 2.52 billion euros after the close of trading yesterday. That compares with 2.48 billion euros a year earlier.

Iberdrola’s Plans

Scottish & Southern Energy Plc rose 1.6 percent to 1,372 pence after Expansion reported that Iberdrola SA is considering a takeover bid for the U.K. utility or a merger with Germany’s RWE AG to dilute Actividades de Construccion y Servicios SA’s stake of about 20 percent in the company.

The newspaper cited people in the banking industry without naming them. An Iberdrola spokesman declined to comment on Expansion’s report. The Spanish company lost 1.2 percent to 6.16 euros, while RWE slid 1.4 percent to 43.22 euros.

3i Group Plc surged 8.2 percent to 293.9 pence after Britain’s biggest publicly traded private equity firm said the value of its assets increased by 9.4 percent as economic growth in emerging economies boosted the earnings of the companies that it owns.

Sky Deutschland AG jumped 6.9 percent to 3.42 euros after the pay-TV operator posted a first-quarter loss before interest, taxes, depreciation and amortization that narrowed to 55 million euros. The broadcaster lost 64.5 million euros on the same basis a year earlier.

--Editors: Will Hadfield, Andrew Rummer

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

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Indonesia May Extend Interest-Rate Pause as Inflation Slows

May 11, 2011, 4:52 AM EDT By Shamim Adam and Manish Modi

(Updates with comment from central bank in 12th paragraph.)

May 11 (Bloomberg) -- Indonesia’s central bank will probably keep interest rates unchanged for a third consecutive meeting to support the economy, allowing gains in the rupiah to reduce inflationary pressures.

Bank Indonesia will keep its benchmark reference rate at 6.75 percent, according to all 10 economists surveyed by Bloomberg News. The central bank is due to release its decision in Jakarta tomorrow.

Indonesia has refrained from boosting borrowing costs since increasing the key rate in February for the first time in more than two years, in contrast with neighbors from Malaysia to India where officials have accelerated monetary tightening. President Susilo Bambang Yudhoyono’s policy makers have extended fuel subsidies and let the rupiah climb the most in Asia after Taiwan this year to contain imported inflation.

“There’s no strong reason for Bank Indonesia to raise rates this month and by holding, it will provide an opportunity for banks to give credit and that will boost economic growth for the rest of this year,’ said Eric Alexander Sugandi, a Jakarta- based economist at Standard Chartered Plc. “We’ve adjusted the timing of the next rate increase to August.”

The Indonesian rupiah climbed to its strongest level since 2004 this month and has gained about 5 percent this year, according to data compiled by Bloomberg. The central bank is allowing the rupiah to appreciate, Bambang Brodjonegoro, head of fiscal policy at the nation’s finance ministry, said last week.

Later Move

Bank Indonesia may not raise rates this week after inflation eased for a third month in April, Brodjonegoro said in Jakarta today.

“Maybe not tomorrow but later this year, especially when Bank Indonesia feels that inflationary pressure is high,” he said. “Until now we are able to manage the inflation, but at one point in time BI has to increase interest rates since other central banks in the region have increased interest rates a couple of times.”

Consumer prices in Indonesia, Southeast Asia’s largest economy, rose 6.16 percent last month from a year earlier, slower than the 6.65 percent pace in March. Prices fell in April compared with March. Core inflation accelerated to 4.62 percent from 4.45 percent.

Policy makers from Thailand to the Philippines and Singapore are stepping up the fight against inflation through rate increases or currency appreciation as political unrest in the Middle East boosts crude oil prices.

Malaysian Rates

Malaysia raised rates last week for the first time this year and asked banks to set aside more cash as reserves, while India boosted borrowing costs on May 3 for the ninth time since the middle of March 2010.

The pressure for Bank Indonesia to adjust interest rates is “not too high” even after core inflation accelerated in April, Governor Darmin Nasution said May 6.

The central bank sees a “probability” of “slight deflation” in May and even if consumer prices rise, the gains may be small, the governor said in Jakarta today. Bank Indonesia will maintain its “tight” monetary policy stance because of “inflation pressure” in the third and fourth quarter, he said.

Indonesia’s economic growth slowed to 6.5 percent last quarter as investment eased. Gross domestic product rose 6.9 percent in the previous three months.

Chance ‘Squandered’

The growth slowdown may not be enough to keep inflation from quickening in coming quarters as food and oil costs rise, straining the budgets of Asian governments that subsidize fuel and putting pressure on countries including Indonesia to raise prices for gasoline and diesel.

Oil traded at above $100 a barrel today, and has climbed about 13 percent this year.

PT Mandiri Sekuritas predicts April was probably the last time this year that consumer prices would fall month-on-month, according to head of research Ari Pitoyo.

“The chance for the government to raise fuel prices during ‘deflation’ months has been squandered, hence should the government have no option but to raise fuel prices, we might see inflation momentarily spike up,” Jakarta-based Pitoyo said.

He is recommending investors trim stocks of financial companies, which were hurt when the government raised fuel prices in 2005. Earnings at companies such as PT Mayora Indah, which makes biscuits and candies, and PT Unilever Indonesia, the unit of the world’s second-biggest consumer-goods company, may be affected should the government raise fuel prices, threatening discretionary spending, he said.

Bank Indonesia may face an “upside surprise” in inflation in July, with the beginning of the school year occurring close to the start of the Muslim fasting month, Wellian Wiranto, an economist at HSBC Holdings Plc in Singapore, said in a research note today.

“The dependence thus far on currency appreciation to curb inflation has had limited effectiveness given the predominance of domestic consumption in the economy,” he said. “Although Indonesia’s economy continues to hum on rather uneventfully, this does not mean there is room for complacency.”

--With assistance from Novrida Manurung and Suryani Omar in Jakarta. Editors: Stephanie Phang, Greg Ahlstrand

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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