European Markets Surge on IMF Outlook

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

The European markets extend gains after the International Monetary Fund lifts global growth forecast for 2010. The European Central Bank and Bank of England keep interest rates flat at 1% and 0.5% respectively. French business sentiment declines in June. German industrial production surges in May.

[R]7:00 PM Frankfurt - The European markets extend gains after the International Monetary Fund lifts global growth forecast for 2010. The European Central Bank and Bank of England keep interest rates flat at 1% and 0.5% respectively. French business sentiment declines in June. German industrial production surges in May.[/R]

In London FTSE 100 Index traded higher 95.80 or 1.91% to 5,110.62, in Paris CAC 40 Index traded higher 54.82 or 1.57% to close at 3,538.26, in Frankfurt DAX Index traded higher 47.56 or 0.79% to close at 6,040.42. In Zurich trading SMI Index traded higher 72.31 or 1.19% to close at 6,171.51.

The International Monetary Fund today upwardly revised its forecast for global economy for the year 2010, and now anticipates global economy to grow 4.6% compared to its earlier forecast of a 4.2% growth. This would represent the fastest rate of global growth since 2007. Growth in 2011 is estimated at 4.3%, unchanged from the previous estimate.

The International Monetary Fund said that the global recovery is likely to continue in spite of sovereign debt issues faced in the euro-zone, although it said the recent turmoil has ""cast a cloud over the outlook.""

""While we predict the recovery will continue, it is clear that downside risks have risen sharply,"" said Olivier Blanchard, the IMF''s chief economist. ""How Europe deals with fiscal and financial problems, how advanced countries proceed with fiscal consolidation, and how emerging market countries rebalance their economies, will determine the outcome.""

The European Central Bank today left its key interest rate unchanged at a record low of 1% for the fourteenth straight month. The last change in the rate was in May 2009, when the bank cut the rate by 25 basis points to the current level of 1%. The bank lowered the key interest rate by a total of three and a quarter percentage points since early October 2008.

The central bank also retained its interest rate on the marginal lending facility at 1.75% and that on the deposit facility at 0.25%.

Consumer price inflation in the 16-nation currency bloc eased to 1.4% in June from 1.6% in May. The ECB aims to keep inflation below, but close to 2% over the medium term.

The Bank of England today left its key interest rate unchanged at a historic low and maintained the size of asset purchase scheme at £200 billion.

At the end of two-day rate setting meeting, policy makers led by Governor Mervyn King, decided to hold the official Bank Rate paid on commercial bank reserves at 0.5%. The Monetary Policy Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion.

The European Union agreed yesterday to a new deal which enforces stricter rules on bonus payments to bankers, as it seeks to contain high-risk taking in the financial sector.

At a plenary session of the European Parliament, E.U. members agreed to cap upfront cash bonuses paid to bankers at 30% of the total bonus and at 20% for particularly large bonuses. The rest of the bonus will be deferred for at least three years and can be recovered if investments do not perform as expected.

European governments should consider raising the retirement age as low birth rates and an aging population could put their pension systems under severe stress in the future, the European Commission noted.

Launching a formal debate on overhauling the pension system, the European Union''s executive body said there are now four persons of working age for every person aged over 65. But that ratio is projected to drop to two for every person over 65 by 2060.

French business confidence dropped for the third month in a row in June, according to a monthly survey released by the Bank of France today. The business sentiment index stood at 100 in June, down from 101 in May.

The survey showed that industrial activity picked up slightly compared with the previous month. All sectors, excluding automotive and other transport equipment sectors, improved in June.

German industrial output grew more than expected in May, as production of intermediate and consumer goods increased compared to April.

The seasonally adjusted industrial production increased 2.6% in May, following a revised growth of 1.2% in April, the Federal Ministry of Economics and Technology said today. On an annual basis, industrial production logged a 12.4% growth in May compared to April''s revised 13.9% increase.

Gainers & Losers

Bayerische Motoren Werke AG fell 1.5% to €39.15 after the automobile manufacturer was downgraded to “neutral” from “buy” at Nomura.

BNP Paribas SA rose 2.7% to €49.29 after the bank wealth management changed its governance structure. The bank will bring its wealth management operations under a single business line.

Commerzbank AG rose 0.9% to €6.26.

Daimler AG fell 0.9% to €41.56 after the maker of luxury cars has downgraded its recommendation to “reduce” from “neutral” at Nomura.

Deutsche Bank AG rose 2.1% to €48.47.

Deutsche Boerse AG rose 0.9% to €51.97 after the international financial marketplace operator was upgraded to “outperform” from “neutral” at Macquarie Group Ltd.

Etablissements Maurel & Prom SA gained 0.9% to €9.77 after the oil explorer said the level of the operated production in Gabon has been just over 16,000 barrels per day since early July 2010. The drilling operation is also carried out in Colombia and Tanzania.

Faurecia SA, the automotive equipment supplier finalized a strategic alliance with Chinese groups Geely and Limin with the objective to develop, manufacture and deliver interior systems and automotive exteriors to all Geely brands in China.

Fielmann AG fell 1.9% to €61.44 after the glasses and contact lens retailer said first half sales rose 5% to approximately €488 million from €464.5 million. The pre-tax profit for the first half rose 8% to around €78 million compared to pre-tax profit of 72.2 million a year ago.

Infineon Technologies AG rose 0.8% to €4.99 after the semiconductor maker launched new RF transistors with electrostatic discharge protection for design of reliable, high sensitivity wireless communications devices.

Renault SA rose 0.8% to €32.43 after the manufacturer of automobiles and related services upgraded the shares to “buy” from “neutral” at Nomura Holdings Inc.

Siemens AG, the engineering company edged up 0.3% to €72.95.

Societe Generale SA increased 2.3% to €38.44.

Total SA rose 1.1% to €37.60 after the integrated international oil and gas explorer was upgraded to “buy” from “neutral” at UBS AG.