European Markets Sideways, Russia Rates on Hold; SAP Up, TF1 Down

Bikram Pandey
25 Mar, 2011
New York City

European markets traded mixed as the EU leaders cut the startup capital for aid fund but set higher target for capital to 600 billion by June. Portugal political and economic crisis deepens and the nation faces a snap election as early as June. Russia holds key rate. SAP AG and L

[R]3:45 PM Frankfurt – European markets traded mixed as the EU leaders cut the startup capital for aid fund but set higher target for capital to €600 billion by June. Portugal political and economic crisis deepens and the nation faces a snap election as early as June. Russia holds key lending rate. SAP AG and L’Oreal gained.[/R]

European leaders haggle to increase the bailout out fund size and Germany asked to limit contribution as the nation faces a regional election. Portugal slips into a deeper crisis as snap election looms as early as June. Russia holds its key rate but increases bank reserve requirements.

Separately the latest data from the European Central Bank showed that bank lending is on the rise and confidence among German business edged lower after rising for nine months.

Europeans are increasingly asking the need of war spending in Libya when the nations are struggling with finances and rising budget deficits. German Chancellor Angela Merkel’s party is facing bleak prospects at regional elections scheduled this weekend.

EU Starts with Lower Capital, Targets €600 Billion Capital

European leaders haggle to iron our differences to increase the size of the stability fund at the end of the 2-day summit and Portugal slips into political and economic turmoil.

European leaders are looking to increase the stability fund size to €400 billion from the current limit of €250 billion in place after the Greek crisis last summer.

However, Germany requested and received to shrink its contribution only three days after agreeing to a higher contribution.

The current summit calls for cash €80 billion of contribution over the next five years in equal amount from each member and keep as much as €500 billion for emergency standby loans with €620 billion in callable capital.

The European leaders renewed the pledge to increase the stability fund size to €440 billion by June but did not specify how they plan to increase that.

Germany today sought to keep the stability fund at €16 billion from the €40 billion agreed on March 21. German Chancellor Angela Merkel is facing a regional election on March 27 and opposition parties have ramped up their displeasure at nay bailout fund.

The unanimous agreement among member states is required to increase the fund and Finnish prime minister has already said she is opposed to any increase county’s “responsibilities.”

Portugal Election Looms

The political crisis in Portugal deepened as rail and bus workers went on a strike opposing any more cuts in pay or benefits. Portugal’s President Anibal Cavaco Silva met with leaders of political parties to resolve the division.

Most people in Portugal are expecting a snap election as early as June. And this poses a dilemma to European leaders in how to provide an aid to Portugal without a government.

Portugal has not sought any aid but the nation is likely to seek as much as €80 billion of aid as early as June.

The yield on Portuguese 10-year bonds increased to 7.79% and spread with the German bonds soared to 452 basis points. The euro was stable at $1.41 and investors appear to be sanguine not worried about the emerging crisis in Portugal.

The CAC 40 index increased 3.47 to 3,972.19, FTSE 100 index added 2.91 to 5,884.19 and DAX index declined 0.11 to 6,933.47.

The indexes in Portugal traded mixed with the PSI General Index up 1% and the indexes in Spain, Greece and Ireland edged higher a fraction.

European Central Bank said that private banks increased lending in February according to the latest data from the central bank. Private sector lending in the month increased 2.6% from a year ago after increasing 2.4% in January.

Russia Holds Rates

Russian central bank left its key lending rate at 8% as inflation hovers near double digits and ruble gains in the international markets. The central bank lifted bank reserve requirement for fourth month in a row.

For the domestic banks the reserve ratio was increased to 4% from 3.5% and for non-resident companies increased to 5.5% from 4.5%.

Consumer price index at the end of March 21 declined to 9.4% from 9.5% in January but ruble has strengthened against the dollar to 28.22 from as low as 35.45 in the summer of 2010.

Stock Movers

L’Oreal increased more than 1.4% after UBS lifted its rating on the stock.

SAP AG increased 1.7% to €42.87 after Oracle estimated higher profit. The manufacturing industry software maker and database developer was also upgraded by HSBC.

Volkswagen AG declined 0.5% to €105.01 on the worries that rising inflation in China will cut in sales.

Free television channels operators were on the decline after Canal Plus SA said it plans to launch its free channel, Canal 20, as early as November. Societe Television Francaise declined 3.5% to €12.99 and M6-Metropole Television SA dropped 3% to €17.99.

Eurazero increased 4% to €55.51 after the private equity firm reported annual 2010 income of €115 million compared to the restated 2009 loss of €200.9 million.