European Markets Drop; Telef

Arthi Gupta, Mayank Mehta and Sanjay Barot
01 Jul, 2010
New York City

European markets traded lower on weaker manufacturing outlook in the euro-zone, China and a sluggish U.S. jobs report. The ECB agrees to lend $136.7 billion to banks. Telef

[R]7:00 PM Frankfurt - European markets traded lower on weaker manufacturing outlook in the euro-zone, China and a sluggish U.S. jobs report. The ECB agrees to lend $136.7 billion to banks. Telefónica extends offer for Portugal Telecom''s stake in Brasilcel until July 16.[/R]

European markets traded mixed after Spain completed the bond offering despite a rating downgrade warning from a rating agency. Weaker economic outlook in China and sluggish U.S. jobs outlook also contributed to the weak sentiment.

Moody''s announced yesterday that it has put Spain''s local and foreign currency government bond ratings on review for a possible downgrade.

Euro-zone manufacturing PMI falls at four-month low to 55.6 in June. French PPI rises 0.1% in May and manufacturing PMI falls in June.

In London FTSE 100 Index traded lower 103.43 or 2.10% to 4,813.44, in Paris CAC 40 Index traded decreased 105.24 or 3.06% to close at 3,337.65, in Frankfurt DAX Index traded lower 117.24 or 1.97% to close at 5,848.28. In Zurich trading SMI Index traded decreased 141.72 or 2.31% to close at 5,986.34.

The European Central Bank said today it is lending €111.2 billion or $136.7 billion to banks in a six-day tender hinting that the region''s banks were fully utilizing emergency loans.

Spain successfully sold €3.5 billion of a five-year bond today despite Moody''s putting Spain''s sovereign rating on review for possible downgrade.

The rating agency said its decision was prompted by the deteriorating economic growth prospects, the challenges the government faces in achieving its fiscal targets and concerns over the impact of rising funding costs over the medium term.

The European Commission on Wednesday proposed a wider range of sanctions and incentives to strengthen the credibility of EU''s fiscal framework. The EC suggested temporary imposing of an interest-bearing deposit to countries making insufficient progress with budgetary consolidation.

Under the Stability and Growth Pact, all European Union members are required to keep their budget deficits below 3% of gross domestic product and government debt should not exceed 60% of GDP.

Euro-zone manufacturing activity grew at its slowest pace in four months as new orders logged the weakest growth for six months, according to a survey data released by Markit Economics today.

The Markit euro-zone manufacturing purchasing managers'' index fell to 55.6 in June from 55.8 in May, confirming the earlier flash estimate.

French producer prices rose 0.1% in May, taking the annual increase to 3.8%, according to data released by the statistics office Insee today. Producer prices for manufactured products showed a monthly growth of 0.4% and an annual 3.4% rise.

The French manufacturing sector growth eased further in June, according to data from Markit Economics released today. The weaker PMI figure reflected slower expansions of both output and new orders during June, alongside a sharper decline in employment.

The seasonally adjusted Purchasing Managers'' Index fell for the second month to 54.8 in June from 55.8 in May. That was its lowest reading since December 2009.

German manufacturing activity registered sharp growth in June. Markit Economics said that the BME manufacturing purchasing managers'' index stood at a seasonally adjusted 58.4 in June, unchanged from May.

After the Extraordinary General Shareholders'' Meeting of Portugal Telecom SGPS S.A., Telefónica SA informed that a majority of the votes issued in the meeting were in favor of the approval of the offer submitted by Telefónica for the acquisition of the Portugal Telecom''s stake in Brasilcel, N.V., with 73.9% of the submitted votes in favor, and 26.1% of the total votes against it.

However, the agreement was vetoed by the Portuguese Government, invoking their rights under the so-called ""Golden Share"", Telefónica said.

Telefónica said that it extends the period granted to such company to communicate its acceptance of the offer until July 16, 2010.

Portugal Telecom had said on Wednesday that it has received a revised proposal from Spain based Telefónica to acquire its 50% shareholding in Brasilcel for a consideration of €7.15 billion, which is valid until July 2, 2010.

Earlier this month, Telefónica had raised its offer to acquire PT''s 50% shareholding in Brasilcel to €6.5 billion from the earlier offer of €5.7 billion and the bid was to expire on June 30.

Gainers & Losers

Allianz SE fell 0.9% to €81.10..

Altana AG fell 0.7% to €15.88 after the specialty chemicals company has approved the transfer of the remaining shares to the company’s main shareholder SKion GmbH.

Dexia SA fell 2.0% to €2.89 after the bank has fully exited the state guarantee liquidity framework put in place in October 2008.

E.ON AG fell 0.9% to €21.95 after the power and gas company disposed its roughly 21% stake in BKW FMB Energie AG, Bern. BKW acquires around 9% of the shares itself. Additionally, further 5% are sold to the Swiss energy provider Groupe E SA.

Evotec AG fell 0.6% to €2.02 after the drug developer today announced the start of the proof-of-concept Phase II study in treatment-resistant depression with its NR2B subtype selective NMDA receptor antagonist EVT 101. This clinical development is part of an alliance between Evotec and Roche.

Faurecia SA fell 2.1% to €12.93 after the automotive equipment supplier proposed to buy an 18.75% stake in China''s state-run automaker FAW Group.

GDF Suez SA, the natural gas and electricity supplier fell 2.3% to €22.92.

Gerresheimer AG fell 2.2% to €25.70 after the supplier of glass and plastic products was upgraded with a “buy” recommendation at Jefferies Group Inc.

Gecina SA fell 3.2% to €71.94 after the real estate investment trust confirmed the group''s ambition to grow the office portfolio to €9 billion and healthcare assets to €1 billion over the next three years.

Groupe Partouche SA, the casino operator fell 3.1% to €2.17.

IKB Deutsche Industriebank AG traded unchanged at €0.630. The bank said fiscal year 2010 net interest income fell 41% to €179 million from €303 million a year ago. Net loss for the year was €974 million compared to net loss of €580 million a year ago.

MorphoSys AG rose 0.2% to €14.56 after the biotechnology company announced today that it will receive a milestone payment from Novartis in connection with the initiation of a phase 1 clinical trial, using a HuCAL-derived, fully human antibody in the therapeutic area of musculoskeletal diseases.

Natixis SA, the bank fell 2.3% to €3.53 and Puma AG, the sporting-goods maker fell 1.5% to €214.55.

Sanofi-Aventis fell 1.6% to €48.71.

Total SA fell 1.4% to €36.37 after the integrated international oil and gas company announced the acquisition of a 20% interest from Shell in the BM-S-54 license in the Santos Basin in Australia.