Euro Area Construction Rises; Stocks Down

Arthi Gupta
18 Aug, 2010
New York City

The European indexes fell after euro area construction output rose 2.7% in June. The Basel Committee noted capital and liquidity rules will have modest impact on economic growth. The OECD said GDP flat in the second quarter. German employment rose in the second quarter and retail sales fell in June.

[R]4:00 PM Frankfurt – The European indexes fell after euro area construction output rose 2.7% in June. The Basel Committee noted capital and liquidity rules will have modest impact on economic growth. The OECD said GDP flat in the second quarter. German employment rose in the second quarter and retail sales fell in June.[/R]

U.S. stocks declined and Asian markets gained.

Ifo forecasted gloomy world economic climate for the third quarter. Moody''s stated the U.S., UK, Germany and France sovereign debt investment grade ratings are justified.

Greek current account deficit narrowed in June. Portugal PPI rose 4.2% in July. Hungary’s Fiscal Council noted budget deficit at 4.2% for 2011.

In Paris CAC 40 Index decreased 24.28 or 0.66% to close at 3,638.85 and in Frankfurt DAX Index edged lower 38.73 or 0.62% to close at 6,167.67.

Euro-zone seasonally adjusted construction output rose 2.7% month-on-month in June following a revised 0.7% decline in May, according to data released by Eurostat today. On an annual basis, construction output grew 3.1% in June compared to a revised 6.2% fall in May.

The rise was driven by a 7.2% jump in output in Spain. Construction declined 0.9% in Germany, while it increased 0.1% in France.

In the EU27, construction production rose 3.5% in June from May. Year-on-year, output rose 3.1%.

The Basel Committee''s assessment of the long-term economic impact found clear net long term economic benefits from increasing the minimum capital and liquidity requirements from their current levels. The group estimates that for each percentage point increase in bank''s actual ratio of tangible common equity to risk-weighted assets over four years will lead to a decline in the level of GDP by about 0.20%.

In terms of growth rates, this means that the annual growth rate would be reduced by an average of 0.04 percentage points over a four and a half year period, with a range of results around these point estimates, the report showed.

Further, the report said a 25% increase in liquid asset holdings is found to have an output effect less than half that associated with a one-percentage point increase in capital ratios. A two-year implementation period leads to a slightly larger reduction from the baseline path.

The Financial Stability Board and Basel Committee on Banking Supervision further said the transition to stronger capital and liquidity standards is likely to have a modest impact on aggregate output.

The world economic climate looks hazy in the third quarter of 2010, according to latest survey results from the Ifo Institute for Economic Research released today.

The think tank said its world economic climate indicator fell to 103.2 in the third quarter from 104.1 in the second quarter but inflation expectations remained stable.

The gross domestic product increased 0.7% on a sequential basis in the second quarter, same as in the previous quarter, according to a report published by the Organization for Economic Co-operation and Development today. However, the GDP was bigger than a 0.3% growth recorded a year earlier.

The real GDP grew by 1% in both the euro area and the European Union in the second quarter, which was mainly driven by record growth of 2.2% in Germany, the report said.

On an annual basis, the GDP grew 2.8% in the second quarter, faster than a 2.4% growth in the first quarter. The GDP increased for the second consecutive quarter. A year earlier, the GDP decreased 4.6%.

The triple-A sovereign ratings of France, Germany, the U.S. and the U.K. are well positioned, despite the fiscal challenges, rating agency Moody''s said on Tuesday.

The number of people in employment in Germany climbed year-on-year for the first time in a year in the June quarter, according to figures released today.

The Federal Statistics Office said a total of 40.3 million people were employed in Germany, an increase of 72,000 or 0.2% from a year ago, which is a record high for a June quarter since the German unification in 1991.

German retail sales turnover edged lower by a real 0.3% in June after seasonal and calendar adjustments, the Federal Statistics Office reported today.

Year-on-year, turnover in retail trade grew 4.7% in real terms and 5.3% in nominal terms in June.

Greece''s current account deficit narrowed from a year ago, according to official data released today.

The current account deficit for June fell to €1.94 billion as against €2.31 billion last year, the central bank reported. The improvement is due to a decline in the trade deficit and a rise in the surplus of the services balance and a drop in the deficit of the current transfers balance, the bank said. These developments were partly offset by an increase in the income account deficit.

Portugal’s producer price inflation rose 4.2% year-on-year in July, compared to a 3.7% growth in the previous month, according to a report released by the Statistics Portugal today. Producer prices increased for the eighth consecutive month. A year earlier, the PPI slipped 6.7%.

On a monthly basis, the PPI rose 0.2% In July, after a flat reading in the preceding month.

Hungary''s budget deficit would rise to 4.2% of gross domestic product next year from an estimated 4% this year, according to a statement released by the country''s Fiscal Council today. The shortfall will probably ease to 3.4% of GDP in 2012. The Council said the government needs strict fiscal control and the financial tax to meet this target.

BHP Billiton decided to make a hostile offer for Potash Corp. of Saskatchewan Inc. direct to the shareholders. The offer values the total equity of PotashCorp at approximately $40 billion on a fully-diluted basis or $130 per share. The offer represents a premium of 20% to the closing price of PotashCorp''s shares on the NYSE on August 11, 2010 and a premium of 32% to the 30-trading day period average.

Gainers & Losers

Danske Bank A/S soared 5.91% to DKK11.47 after the Danish financial institution had its recommendation upgraded to ""buy"" from ""neutral"" by BofA Merrill Lynch.

Sanofi-Aventis SA gained 1.03% to €29.32 after the pharmaceutical company requested a federal judge in Washington to issue an appropriated decision as soon as possible to block the sale of a generic version of its Lovenox blood thinner.

Swiss Life Holding AG surged 6.96% to Sfr109.10 after first-half net profit rose 89% to Sfr268 million from Sfr142 million a year earlier. The company said gross written premiums grew 18% to 12.24 billion francs.

Telekom Austria Group gained 0.66% to €9.77 after the full service telecommunications providers reported second-quarter quarterly revenues declined 1.9% to €1.17 billion from €1.19 billion in the year-ago period. Net income in the quarter fell 16.5% to €68.7 million or 16 euro cents per diluted share compared to net income of €82.3 million or 19 euro cents per share in the prior year.

Teleperformance SA edged higher 0.37% to €18.85 after the call center operator acquired a 100% stake in U.K.-based Cogent for an undisclosed sum.

Vestas Wind Systems A/S slumped 20.71 to DKK249.300 after the wind-turbine maker revised its annual sales forecast to €6 billion from €7 billion.