European Markets 9-Day Rally Continues

Arthi Gupta, Mayank Mehta and Sanjay Barot
21 Jun, 2010
New York City

European markets extend their gains for a ninth consecutive session after China decides to lift the peg of its currency against the dollar. Portugal producer prices rises 0.4% in May. Hungary Central Bank maintains key policy rate unchanged at 5.25%.

[R]4:30 PM Frankfurt - European markets extend their gains for a ninth consecutive session after China decides to lift the peg of its currency against the dollar. Portugal producer prices rises 0.4% in May. Hungary Central Bank maintains key policy rate unchanged at 5.25%.[/R]

The Bank of Greece Governor George Provopoulos is optimistic Greece will emerge stronger from the sovereign debt crisis. Hungarian government freezes 40 billion forints spending to reduce the budget deficit.

Corn Products agreed to buy National Starch from AkzoNobel for $1.3 billion in cash.

In London FTSE 100 Index traded higher 47.86 or 0.91% to 5,298.70, in Paris CAC 40 Index increased 49.07 or 1.33% to close at 3,736.28, in Frankfurt DAX Index traded higher 68.65 or 1.10% to close at 6,285.63. In Zurich trading SMI Index increased 77.67 or 1.20% to close at 6,524.73.

China permitted the yuan to trade in a wider zone after months of resisting the move. The People’s Bank of China said on Saturday that it would allow the Chinese yuan to increase in value after announcing the end of its two-year-old peg to the U.S. dollar.

China''s central bank said on Sunday that it intends to keep the yuan ""basically stable"" and is not planning an immediate one-off revaluation of the currency. ""At present there is no basis for major exchange rate fluctuations,"" the People''s Bank of China said on its Web site.

The European Central Bank and the group of euro-zone finance ministers welcomed the decision of the Chinese central bank to further reform the exchange rate regime of the renminbi and to enhance the flexibility of the renminbi exchange rate.

Greece''s central bank governor said the support package provided by the European Union and the International Monetary Fund will prove to be a ""catalyst"" and ensure that Greece emerges stronger from the crisis.

""The support package agreed between the Greek government and the European Commission, the ECB and the IMF provides the government with a unique opportunity to adjust the economy,"" Bank of Greece Governor George Provopoulos said at a conference in Athens. ""The package provides a blueprint for sharply reducing fiscal imbalances and for the undertaking of structural reforms.""

Greece has a mammoth budget deficit of nearly 14% of gross domestic product which it targets to bring below 3% in 2014 in exchange for a €110 billion bailout package from the E.U. and the IMF.

""I have no doubt that the government will take whatever measures are needed to attain its fiscal objectives to ensure fiscal sustainability,"" Provopoulos said. ""It will, however, take some time to convince the markets of the government''s determination to achieve those goals.""

The Hungarian government is freezing 40 billion forints worth of spending to reduce the budget deficit, according to local media reports that cited the official gazette.

Eight ministries and several public agencies will have to make equivalent to almost $180 million in cost reductions. Payments of bonuses in the state sectors will be frozen.

Prime Minister Viktor Orban, who took office on May 29, has vowed to stick to this year''s budget deficit target of 3.8% of gross domestic product, approved by the International Monetary Fund and the European Union.

The budget deficit has already reached around 84.6% of the full year deficit target during three months ended May. The new government had announced a 29-point action plan two weeks ago. The cabinet plans to save 120 billion forints by way of public expenditure cuts and overhauling wages of state employees. The cabinet expects to generate savings 200 billion forints from the financial sector this year.

The Hungarian central bank left its key policy rate unchanged for the second straight month today.

The Magyar Nemzeti Bank maintained the base rate at its record low of 5.25%. In April''s meeting, the bank slashed the key rate by 25 basis points to 5.25%.

Hungary''s inflation rate eased in May. Annual consumer price inflation slowed to 5.1% in May from 5.7% in the previous month. The bank forecasts inflation to rise to 4.9% in 2010, then ease to 3% in 2011.

Portugal''s producer price inflation increased for the fifth straight month in May.

The producer price index, or PPI, rose 4.1% year-on-year in May, faster than the 4% growth in the previous month. A year earlier, the PPI decreased 4.9%. On a monthly basis, producer prices rose 0.4% in May, following a 1.1% rise in April.

Manufacturing PPI increased 4.3% annually in May, compared to a 4.2% rise in April. On a monthly basis, manufacturing PPI grew 0.5% versus a 1.1% rise in April.

Corn Products International, Inc. said it entered into an agreement to acquire National Starch from AkzoNobel for $1.3 billion in cash.

The acquisition, which has been approved by the boards of directors of both Corn Products nternational and AkzoNobel, is expected to close in the third quarter of 2010.

Ilene Gordon, chairman, president and chief executive officer of Corn Products International, stated, ""We are confident that this acquisition will create lasting, long-term value for our shareholders. The transaction is expected to generate cost synergies of at least $50 million, primarily from efficiencies in the areas of manufacturing, procurement, logistics and general & administrative functions.""

Gainers & Losers

Alstom SA, the power, engineering and locomotives maker signed an agreement with Russia’s Transmashholding and Kazakh Railways for the creation of a joint venture company to produce electric locomotives in Kazakhstan.

BASF SE, the chemical company rose 1.5% to €46.92.

Commerzbank AG, the bank rose 1.6% to €6.23 and Deutsche Bank AG, the investment bank rose 0.3% to €50.57.

Electricite de France SA, the integrated energy operator rose 1.8% to €36.45 and France Telecom SA, the telecommunication operator rose 0.4% to €15.45.

GDF Suez SA, the natural gas and electricity supplier rose 1.1% to €26.15.

Infineon Technologies AG rose 1.8% to €5.35 after the chipmaker announced that IBM will manufacture Infineon-designed highly-secure integrated circuits used for secure identification applications, including electronic passports compliant with international travel regulations and the U.S. Personal Identity Verification cards.

Ipsen SA rose 2.6% to €277.79. The pharmaceutical company was downgraded to “hold” at Jefferies Group Inc.

Stallergenes SA rose 0.2% to €54.15 after the biopharmaceutical company announces the results of a phase III clinical trial conducted in China aimed at assessing the efficacy and safety of sublingual immunotherapy in adult patients suffering from asthma triggered by house dust mites.

Technicolor, the provider of production, postproduction, and distribution services rose 1.6% to €0.540.

Technip, the oilfield-services company rose 5.1% to €54.07.

United Internet AG, the Internet service provider rose 1.0% to €9.99.