Europe and U.S. Differ on Stimulus

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

European indexes fall on reports that the U.S. GDP expands 2.7% in the first quarter. The EC extends bank support schemes for Austria and Latvia. Spanish producer price inflation accelerates 3.8% in May.

[R]4:30 PM Frankfurt - European indexes fall on reports that the U.S. GDP expands 2.7% in the first quarter. The EC extends bank support schemes for Austria and Latvia. Spanish producer price inflation accelerates 3.8% in May.[/R]

Leaders from the G20 group of nations begin a two-day summit in Toronto on Saturday. The European Union has called for a coordinated exit strategy from stimulus measures but the U.S. prefers the stimulus to be in place.

In London FTSE 100 Index traded lower 18.60 or 0.36% to 5,081.63, in Paris CAC 40 Index decreased 26.90 or 0.76% to close at 3,528.46, in Frankfurt DAX Index traded lower 36.84 or 0.60% to close at 6,078.64. In Zurich trading SMI Index decreased 21.49 or 0.34% to close at 6,299.13.

Leaders from eight of the world''s largest democracies are gathering in rural Ontario, Canada today. The G8 will focus on progress in delivering promised aid to Africa, with leaders meeting with invited representatives from that continent on the sideline of the summit.

The US is expected to press for continued economic stimulus measures from Europe and Asia, arguing that the global economy needs to be put on solid footing before austerity measures should be implemented. Climate change and financial reform are also on the agenda in Toronto.

Europe, facing pressure from the bond markets due to runaway deficits, is preparing sweeping budget cuts that U.S. officials fear will stifle economic growth.

The Eurocoin indicator declined for the third consecutive month in June, according to data from the Center for Economic Policy Research and the Bank of Italy released today.

The indicator that suggests the current economic situation index in the euro area fell to 0.46 from 0.55 in May. This was the lowest reading since October 2009.

The European Commission today extended aid schemes for credit institutions in Austria and Latvia. The extended schemes feature higher premiums to be paid by banks to the state for guaranteeing the loans they raise on the market.

The Commission extended the aid scheme for Austrian credit institutions and banks in Latvia until December 31 2010.

The French economy recorded weak growth in the beginning of 2010 as the improvement in foreign trade position was largely neutralized by the fall in investment, while household as well as government spending stagnated.

The economy expanded only 0.1% on a sequential basis in the first quarter, following the 0.6% growth in the previous three months, according to reports from the statistical office Insee released today.

Spanish producer price inflation rose for a fifth straight month in May. The producer price index rose 3.8% year-on-year in May, faster than a 3.7% growth in the preceding month, according to data from the statistical agency INE released today.

The German government on Thursday lowered its planned third quarter capital market issuance and signaled more cuts for the fourth quarter as the country''s fiscal situation showed some improvements.

Germany’s federal government will issue €44 billion in government bonds in the third quarter, a decline from the €46 billion estimated in December. Treasury bills of €33 billion were also put on sale for third quarter.

Gainers & Losers

Beiersdorf AG rose 1.1% to €45.50 after the personal-care products maker was upgraded to “buy” in new coverage at Nomura Holdings Inc.

Daimler AG fell 1.9% to €42.60 after the producers of premium cars was downgraded to “neutral” from “buy” at UBS AG.

Electricite de France SA, the integrated energy operator fell 3.1% to €34.00.

freenet AG rose 1.4% to €8.41 after the communications provider was upgraded to “overweight” from “neutral” at HSBC Holdings Plc.

GDF Suez SA, the natural gas and electricity supplier fell 2.3% to €25.0.

Groupe Gorge SA, the maker of submarine robotics and composite parts traded unchanged at €6.39.

Infineon Technologies AG, the chipmaker fell 1.0% to €5.00.

Solarworld AG rose 1.8% to €10.20 after the solar company was upgraded to “overweight” from “neutral” at HSBC.

Vicat SA fell 0.8% to €54.56. The manufacturer of cement has announced financing for the Vicat Sagar greenfield cement plant in India. This cement plant will have a cement capacity of 5.5 million tonnes per year.