Large EU Bailout Fuels Sharp Market Rebound

Arthi Gupta, Mayank Mehta and Sanjay Barot
10 May, 2010
New York City

European markets rebound sharply after the EU offered a large financial package to troubled member nations and altered the way the region manages its finance. Indexes soared in Spain, Portugal and France and banks surged in the sharpest one day gain in more than two years. The euro added 1.5%.

[R]6:00 PM Frankfurt, Paris; 12:00 PM New York – European markets rebound sharply after the EU offered a large financial package to troubled member nations and altered the way the region manages its finance. Indexes soared in Spain, Portugal and France and banks surged in the sharpest one day gain in more than two years. The euro added 1%.[/R]

Market indexes, commodities and confidence was on a sharp upswing after the European Union ministers in an emergency meeting provided financial stabilization plan that totaled €750 billion.

The euro rebounded 1.5% and most market indexes in the region soared more than 4.5%. Yields on bonds of Greece, Portugal and Italy fell but German bond yields declined.

European finance ministers have agreed to put together a €500 billion plan to ensure stability in the euro zone and prevent the widening financial crisis in the region.

The 16-member nations of the eurozone have agreed to provide a combined €440 billion worth of loan guarantees, while the rest will come from the European Commission. The International Monetary Fund agreed to provide an additional €220 billion.

The European Central Bank also confirmed that it will for the first time buy both public and private sector debt within the euro-zone to protect the common currency. ""The objective of the program is to address the malfunctioning of securities markets and restore an appropriate monetary policy transmission mechanism,"" the bank said in a statement

The ECB said that the U.S. Federal Reserve will reopen a dollar swap program established during the financial crisis to make sure that foreign banks have an adequate supply of funds. In a key step towards improving liquidity, the Federal Reserve will send dollars overseas through the Bank of Canada, the Bank of England, the ECB and the Swiss National Bank.

""The fiscal efforts of the E.U. member states, the financial assistance by the commission and by the member states, actions taken today by the European Central Bank prove we shall defend the euro whatever it takes,"" E.U. Monetary Affairs Commissioner Olli Rehn said in a news conference following the announcement of the stability package.

In a unanimous vote, the policy board of the central bank left its uncollateralized overnight call rate unchanged at 0.1% and pledged to maintain an extremely accommodative financial environment.

Market indexes soared after a surprising large financial commitment and coordinated efforts between the ECB and the U.S. Fed. Spain’s IBEX 35 rose a record 13% and led the other indexes in the regions with most indexes gaining more than 4.5%

The combined move from the EU and IMF lifted trading sentiment around the world and the euro rebounded in Monday’s trading. The euro rebounded to $1.3029 after dropping as low as $1.276 on Friday.

Greek bond yields dropped sharply to 6.75%, a decline of 570 basis points.

The Bank of England announces key interest rates unchanged at 0.5% and maintained its GBP 200 billion asset purchase scheme. Amid the announcement, the pound gained further against other major currencies.

In London FTSE 100 Index closed higher 229.95 or 4.49% to 5,352.97, in Paris CAC 40 Index increased 275.39 or 8.12% to close at 3,667.98, in Frankfurt DAX index higher 256.59 or 4.49% to close at 5,971.68. In Zurich trading SMI increased 254.38 or 4.10% to close at 6,460.01.

Gainers & Losers

BASF SE, the chemicals company gained 5.0% to €43.11.

Bilfinger Berger AG increased 8.3% to €47.77. The construction company said first quarter revenues fell 1% to €1.73 billion from €1.75 billion a year ago. Net profit for the quarter rose 109% to €48 million or €1.10 per diluted share compared to net profit of €23 million or €0.60 per share a year ago.

Deutsche Bank AG surged 10.7% to €50.73 after the bank was upgraded to “neutral” from “underperform” at Bank of America Merrill Lynch Global Research.

Deutsche Lufthansa AG, the aviation company rose 3.3% to €11.66.

Eiffage SA increased 6.5% to €38.53. The construction company said first quarter sales fell 4.2% to €2.91 billion or $3.7 billion, while the order book at the end of three months stood at €10.3 billion.

Euler Hermes SA added 5.9% to €63.58. The provider of credit insurance services said first quarter revenues fell 8% to €505.5 million from €548.5 million a year ago. Net profit for the quarter rose 188.5% to €47.6 million compared to net profit of €16.5 million a year ago.

France Telecom S.A, the telecom operator rose 4.4% to €15.81. The company increased its stake in Orange Botswana to 69%. The deal has also seen a consortium of local investors sell around a 20% stake in the mobile telecom operator.

The aim of the deal is pre-empting a takeover offer from an unnamed South African mobile operator seeking to enter the market in Botswana.

Fresenius SE rose 0.9% to €50.83.

Italcementi SpA gained 5.0% to €7.52. The producer and distributor of cement said first quarter revenues fell 11% to €1.07 billion from €1.20 billion a year ago. Net loss for the quarter was €37.50 million compared to net loss of €12.7 million a year ago.

Symrise AG increased 7.0% to €18.17 after the maker of scents and flavors was upgraded to “buy” from “hold” at UniCredit SpA.

ThyssenKrupp AG, the steelmaker gained 5.1% to €23.75.

Vivendi SA added 5.0% to €17.67.