Euro Area Manufacturing at 8-Month Low

Arthi Gupta
01 Oct, 2010
New York City

The European indexes fell after euro-zone manufacturing fell in September and unemployment in the region stayed at elevated level. German manufacturing activity growth decelerated and French growth was at five-month high. Rio Tinto Alcan agreed to invest $140 million in Icelandic smelter.

[R]4:00 PM Frankfurt – The European indexes fell after euro-zone manufacturing fell in September and unemployment in the region stayed at elevated level. German manufacturing activity growth decelerated and French growth was at five-month high. Rio Tinto Alcan agreed to invest $140 million in Icelandic smelter.[/R]

European markets focused on the stubborn unemployment in the region and struggled to close higher. The manufacturing index showed the protracted economic recovery. U.S. stocks rose after upbeat personal spending report and Asian markets advanced on strong manufacturing data from China.

Euro area jobless rate remained flat in August. German retail sales declined in August and Swedish manufacturing sector expanded in September. Swiss retail sales dipped in August and industrial activity eased in September. Spanish manufacturing index declined in September.

Repsol and Sinopec formed $17.8 billion alliance in Brazil.

In Paris CAC 40 Index increased 5.17 or 0.14% to close at 3,720.35 and in Frankfurt DAX Index edged higher 32.59 or 0.52% to close at 6,261.61. For the week, the CAC 40 Index declined 1.6%. For the week, the DAX Index gained 0.49%.

Greece Prime Minister George Papandreou said in an interview with China''s Xinhua news agency that Greece''s austerity program is on target and the country will emerge successful in its battle to reshape its economy. In the interview published today, Papandreou rejected talk of the country reneging on its debts, saying Greece will remain credible to its creditors.

Euro area manufacturing activity fell to an eight-month low in September. Markit Economics said the manufacturing purchasing managers'' index came in at a seasonally adjusted 53.7 in September compared to 55.1 in August.

The euro area unemployment rate continued to stay at a 12-year high in August as the economic recovery in the region struggles to create new jobs. The euro area unemployment rate remained at 10.1% in August, unchanged from July, according to data published by Eurostat, the statistics office of the European Union. The rate for July was revised up from 10%.

The number of unemployed in the euro area decreased by 20,000 to 15.869 million people in August compared to an increase of 9,000 with July.

In the EU27, the jobless rate was also stable in August, at 9.6%.

German retail sales dropped a seasonally and calendar adjusted 0.2% in real terms in August, following a 0.4% fall in July, the Federal Statistics Office said in a report today. On an annual basis, retail turnover recorded a real growth of 2.2% in August compared to the 1.2% increase in July.

For the first eight months of the year, retail sales increased 0.9% compared to the same period of the previous year.

Germany''s manufacturing sector activity growth slipped sharply in September as output growth eased to an 11-month low, according to survey data from Markit Economics published today.

The seasonally adjusted Markit/BME Purchasing Managers'' Index fell to 55.1 in September from 58.2 in August. The flash estimate for September was 55.3.

French manufacturing activity grew at the fastest pace in five months in September, supported by sharper increase in new orders.

The seasonally adjusted purchasing managers'' index rose to 56 in September as against 55.1 in August, according to a final report from Markit Economics released today. The flash estimate for September had shown a score of 55.4, a four-month high.

Swedish manufacturing activity strengthened in September, according to a survey by Swedbank and Swedish National Association of Purchasing and Logistics released today. The purchasing managers'' index for the manufacturing sector rose to 63.3 in September from 60.6 in August.

The index for new orders rose to 65.8 in September from 61.8 in August with both orders from domestic as well as export markets remaining strong.

Swiss retail turnover slipped a real 2.6% on a monthly comparison in August, the Federal Statistics Office said today. This reversed a 1% rise seen in July. Excluding fuel, the retail sector showed a seasonally adjusted decline in real turnover of 2.2% in August compared with July. Annually, retail sales grew 0.5% in August compared to the 4.7% growth in July.

In another report, Switzerland''s SVME Purchasing Managers'' Index dropped for a second month in September, according to a joint report by the SVME Association of Purchasing and Materials Management and Credit Suisse released today. The indicator fell 1.7 points to 59.7 in September.

Business conditions at Spanish manufacturing companies deteriorated for the first time in seven months, according to a survey conducted by Markit Economics. The manufacturing purchasing managers'' index fell to 49.6 in September from 51.2 in August.

Greek manufacturing purchasing managers’ index increased to 44.7 in September from 43 in August. New orders decreased sharply in September as new business fell for the thirteenth straight month.

A member of the Czech National Bank called for a rise in interest rates in the September meeting, notes of the meeting released today revealed.

Eva Zamrazilova voted to lift the two-week repo rate to 1% from the current 0.75%, citing rising inflationary pressures. The other governing board members at the meeting all voted for rates to be held.

Repsol YPF SA, the Spanish oil and gas group and China Petroleumn & Chemical Corp. or Sinopec announced the formation of an alliance worth $17.8 billion, probably Latin America''s largest private energy group.

The joint venture will be 60% owned by Repsol and 40% owned by Sinopec, which will also invest $7.1 billion in the company. Repsol Brasil''s assets are currently valued at $10.664 billion.

Repsol noted that with this new investment, its Brazilian subsidiary is fully capitalized to develop all of its current projects in the country, including world class discoveries in the Guara and Carioca pre-salt basins.

Repsol Chairman Antonio Brufau said, ""The deal is a good reflection of the value created by the investment of technical, human and material means by Repsol in exploration, particularly in Brazil''s pre-salt offshore in the last few years.""

Rio Tinto Alcan announced that it would invest $140 million in a casting facility to produce value-added billet at its aluminum smelter in Straumsvik, Iceland, bringing total investment announced in recent weeks in ISAL to $487 million.

In conjunction with its $140 million investment, Rio Tinto Alcan will consolidate the expertise and production for the slab products from ISAL with existing operations in France and the UK.

Gainers & Losers

Brenntag AG, the distributor of industrial chemicals gained 1.54% to €61.94 after its major shareholder, BC Partners, a buyout firm is looking to sell up to 11 million shares in the chemicals distribution company, Deutsche Bank said.

BP plc rose 1.51% to $41.79 after the oil and gas explorer agreed to pay a record $15 million fine to resolve environmental violations at its Texas City refinery, the U.S. Department of Justice and Environmental Protection Agency said.

Commerzbank AG climbed 0.24% to €8.20 after the German lender may increase its equity capital this year, Frankfurter Allgemeine Zeitung reported.

Dexia SA edged higher 0.19% to €3.24 after the Franco-Belgian financial group signed a letter of commitment to establish a commercial-banking partnership with France''s Credit Mutuel-CIC.

France Telecom S.A. advanced 0.73% to €15.97 after the France-based telecommunication operator said it bought Telecom Italia''s submarine cable unit Elettra for an enterprise value of €20 million.

GDF Suez SA fell 0.25% to €26.19 after the natural gas and electricity supplier bought a 49% stake in gas and energy trading firm Gaselys.

Novartis AG declined 0.80% to Sfr55.90 after its U.S. subsidiary agreed to pay $422.5 million in civil and criminal fines for indulging in off-label marketing and for paying kick-backs to doctors.

TUI AG dropped 1.20% to €8.87 after the tour operator was downgraded to “equal weight” from “overweight” at Morgan Stanley.