European Markets Struggle; German Output Drops, Construction Plunges

Marcus Jacob
08 Feb, 2011
New York City

European markets traded lower after Germany reported 1.5% decline industrial production in December and construction plunged 24%. UBS AG reported its first annual profit since 2008 and attracted net new assets. Xstrata Plc annual net soared 86%. ArcelorMittal guided higher quarterly net.

[R]2:00 PM New York – European markets traded lower after Germany reported 1.5% decline industrial production in December and construction plunged 24%. UBS AG reported its first annual profit since 2008 and attracted net new assets. Xstrata Plc annual net soared 86%. ArcelorMittal guided higher quarterly net.[/R]

Stocks in early trading came under pressure after commodities declined and China lifted rates for the third time in the last five years. The increase of 25 basis points was expected and more increases in the years are likely.

Industrial production in German declined 1.5% in December compared to revised 0.6% increase in November.

The difficult weather conditions played part in weak data as construction plunged in the month 24% according to data released by the Economy Ministry.

Manufacturing output declined 0.1%.

China Lift Rates

People’s Bank of China lifted its rate by 25 basis points on the last of holiday period and ahead of important inflation report next week.

The benchmark one-year lending rate will increase to 6.06% from 5.81% and one year deposit rate was raised to 3% from 2.75%.

The third increase in rate in less than five months since October was widely anticipated as China battles rising food and commodities prices.

China joined other Asian nations India, Indonesia and South Korea and lifted rates in the last two years as inflation continues build pressures in the economy.

Chinese economy is still expected to grow at more than 9% in the current year and home prices are expected to gain at least 10% and bank lending is estimated to expand 5% or more.

UBS Returns to Profit After Four Years

UBS AG increased in Swiss trading after the private wealth manager reported first annual profit since 2006. For the quarter net rose 7% and attracted net new asset of Sfr 6.1 billion.

The company realigned its profit pool and paid bonus that is linked to the long term performance at the company. Bankers with more than Sfr 250,000 total compensation will get 60% in deferred shares and members of executive board will get more than 75% income in shares that are saleable after three years.

Profit at asset management unit plunged 52% to Sfr 135 million and in its wealth management unit in the Americas reported a loss of Sfr 33 million.

Toyota Lifts Outlook

Toyota Motor said nine months net soared four-fold and revised the outlook for the full year earnings but latest quarter to December net declined 39%.

For the nine-month period net soared 293.7% to 382.7 billion and lifted annual net outlook may double to 490 billion yen.

Net in the third quarter declined to 93.6 billion yen from 153.2 billion yen. Sales in the quarter declined 12% to 4.6 trillion yen.

ArcelorMittal Guides Higher

ArcelorMittal gained as much as 4.5% in European trading after it reported a net loss of $780 million in 2010. Higher raw materials cost and sluggish demand curtailed company’s ability to pass on the costs to consumers.

Hot rolled steel coil prices have declined for two quarters in a row of more than 8% in the last two quarters.

Operating earnings in the last quarter were $1.85 billion and in the current quarter are estimated to be between $2 billion and $2.5 billion.

The company guided higher steel prices in the first quarter and also said it will increase raw material production at its mines.

Xstrata Net Surges 86%

Xstrata Plc, Switzerland based largest steel exporter said 2010 net soared 86% to $5.15 billion from $2.77 billion in the prior year.

The company benefited from the 38% increase in coal prices in 2010 to $99 a ton. The debt declined 38% to $7.6 billion and earnings per share increased to $1.77.

Coal output at company controlled mines declined 6% to 79.9 million tons in the year and copper output increased to $913,500 tons from 907,000 tons.

The company guided lower growth in the current year and said interest rates hikes in Asia and higher inflation will cut the rate below that in 2010.