By Adam Haigh Nov. 5 (Bloomberg) -- European stocks retreated for the first time in seven days and U.S. index futures dropped after disappointing earnings overshadowed speculation that Barack Obama will boost the economy with a stimulus package. Time Warner Inc. declined 1.9 percent in Germany as the world's largest media company lowered its full-year profit forecast. ArcelorMittal, the biggest steelmaker, slumped 17 percent after saying it will slash production as prices tumbled. The dollar gained against the euro and Treasuries fell on expectations Obama's victory and Democrat gains in Congress will speed passage of spending plans. Europe's Dow Jones Stoxx 600 Index lost 2.2 percent to 228.42 as of 12:55 p.m. in London. Futures on the Standard & Poor's 500 Index decreased 1.5 percent before a report that may show service industries in the U.S. shrank in October. ``There is still deterioration in the profits outlook,'' said Bernd Meyer, head of pan-European equity strategy at Deutsche Bank AG in London. ``Earnings estimates from analysts are too high. The fourth quarter will be substantially weaker.'' He spoke in Bloomberg Television interview. The bank's asset management division has $716 billion. Earnings for the 922 companies in western Europe that reported results since Oct. 7 declined 4.9 percent on average, trailing expectations by 3.5 percent, Bloomberg data show. Profits for the 378 companies in the S&P 500 that have reported, including Boeing Co. and AT&T Inc., have shrunk 8.7 percent, while beating predictions by 1.1 percent, the data show. Asian shares gained, pushing the MSCI Asia Pacific Index 4.8 percent higher, on signs that credit markets are thawing. National Markets National benchmark indexes fell in 16 of the 18 western European markets. The U.K.'s FTSE 100 slid 2.3 percent and France's CAC 40 lost 2.4 percent as BNP Paribas SA dropped after the bank said third-quarter profit fell 56 percent. Germany's DAX decreased 1.7 percent with Q-Cells SE tumbling 15 percent after Deutsche Bank recommended selling the stock. Obama will face a U.S. economy battered by falling corporate profits and the highest unemployment in five years. Concern that $680 billion in bank writedowns will halt growth pushed the S&P 500 down 17 percent last month, the most since 1987. The Institute for Supply Management's non-manufacturing index, which covers almost 90 percent of the world's largest economy, probably dropped to 47 from 50.2 in September, according to a Bloomberg survey of economists. A reading of 50 is the dividing line between growth and contraction. Economic Path Ahead ``The election in the U.S. removes one uncertainty, but we have some earnings disappointments today that reminds us the economic path ahead of us won't be an easy one,'' said Lawrence Peterman, investment director at Eden Financial Ltd. in London. American Express Co., the largest U.S. credit-card company by purchases, lost 1.4 percent to $29.41 in Germany. JPMorgan Chase & Co., the nation's biggest bank by market value, declined 1.2 percent to $41.66. Stocks may extend declines after Obama's victory before picking up, if election history is any guide. The S&P 500 slumped by 0.9 percent in the month after a Democrat wins the presidency, based on the median change of 10 victories by party since 1932, according to data compiled by Bloomberg. Still, when Democrats won for the first time, the S&P 500 recovered those losses and advanced 9.3 percent over the next 12 months. Bull Market A rally in the S&P 500 may be in the offing soon after Inauguration Day in January, based on the speed of its tumble from last year's peak and the time it took stocks to gain before recessions ended in 1975, 1982 and 1991. Should the current recession be as severe as the one in the 1970s, it will last until July 2009, according to economist estimates. Given the stock market's history of anticipating economic recoveries, the S&P 500 may start its next bull market in February. In Europe, the Stoxx 600 through yesterday had climbed 19.7 percent since Oct. 27, trimming this year's loss to 36 percent, as central banks from the U.S. to Japan cut borrowing costs to revive economic growth. The European Central Bank and the Bank of England are forecast to cut rates when they meet tomorrow. Earnings Reports Time Warner slid 1.9 percent to $10.62 in Germany. The company said third-quarter profit fell 1.7 percent and lowered its full-year profit forecast on costs to restructure. ArcelorMittal sank 17 percent to 20.35 euros after reporting third-quarter net income of $3.82 billion, missing analysts' estimates of $5.72 billion. Carlsberg A/S, the Nordic region's largest brewer, dropped 4.8 percent to 244.75 kroner after cutting its full-year outlook. Third-quarter net income rose to 1.22 billion kroner ($210 million), missing the 1.46 billion-krone estimate of seven analysts surveyed by Bloomberg News. BNP Paribas, France's largest bank, fell 3.9 percent to 56.215 after saying third-quarter profit slumped 56 percent as provisions for risky loans quadrupled following the collapse of Lehman Brothers Holdings Inc. Net income declined to 901 million euros ($1.17 billion), missing the 1.38 billion-euro median estimate of 13 analysts surveyed by Bloomberg. Q-Cells Falls Q-Cells tumbled 15 percent to 34.4 euros after Deutsche Bank cut its recommendation to ``sell'' from ``buy,'' citing slower growth. Today's fall trims the previous five days of gains to 70 percent. Credit markets are still creaking even after the biggest decline on record in the rate banks say they charge each other to borrow dollars. The London interbank offered rate, or Libor, for three- month loans fell to 2.51 percent today, from 4.82 percent on Oct. 10. The rate is still 151 basis points more than the Federal Reserve's target interest rate for overnight bank loans, compared with an average of 22 basis points in the five years before the global credit crisis began in August 2007. $3 Trillion Government bailouts totaling about $3 trillion, interest- rate cuts worldwide and cash injections by central banks drove Libor lower in the past month without convincing financial institutions to lend. About 85 percent of U.S. banks tightened lending standards on loans to large and mid-size companies in the past three months, the Fed said on Nov. 3, the highest since the survey began in its current format in 1991. ``The mere fact that the rate is going down doesn't mean there is more activity going on,'' said Colin McLean, Edinburgh- based managing director at SVM Asset Management, which has about $1 billion under management. The Stoxx 600 is valued at 9.6 times reported earnings of the companies in the index, below the average over the past four years of 14 times profit. The gauge traded at 7.9 times earnings on Oct. 27, the lowest since at least January 2002. To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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