U.S. Debt Impasse Drags European Indexes; Total Net Falls

Arthi Gupta
29 Jul, 2011
New York City

European indexes traded lower after ratings agency placed Spain''s ratings on review for possible downgrade. The U.S. debt ceiling impasse added to traders

[R]1:30 PM Frankfurt – European indexes traded lower after ratings agency placed Spain''s ratings on review for possible downgrade. The U.S. debt ceiling impasse added to traders’ woes and overshadowed earnings from EDF, Continental, and EADS.[/R]

U.S. indexes futures edged lower after Republican lawmakers cancelled a critical vote on House Speaker John Boehner''s bill for raising the U.S. debt ceiling.

Boehner on a dramatic Thursday failed to garner enough support for his negotiated bill with President Barack Obama to cut spending by $3 trillion and raise debt limit in two steps.

The U.S. is only three days away from a debt default that could slow the incipient economic recovery and raise rates worldwide. The irresponsible lawmakers are largely concerned about their election prospects a year from now rather than the fiscal future of the U.S. and world economy.

Asian markets fell after a deadlock on the U.S. debt ceiling continued and mixed economic data.

European indexes declined after Moody''s Investors Service today placed Spain''s Aa2 government bond ratings on review for possible downgrade. The rating downgrade will be limited to one notch, the agency said.

Spanish and Italian bond yields rose after credit rating agency Moody''s placed Spain''s credit rating on review for downgrade.

Spanish 10-year bond yields were at 6.16% and Italian 10-year yields were at 5.93%. The yields are at a record high since the creation of the euro in 2000.

The ratings agency was of the view that funding costs increased for the Spanish government and pressures are likely to increase still further following the announcement of the official package for Greece.

The main driver of Moody''s decision to place Spain''s sovereign rating on review for possible downgrade is the increased vulnerability of the Spanish government''s finances to market stress and consequently to elevated funding costs and event risk.

The agency also downgraded the long-term ratings of six Spanish regions by one notch because of the deterioration in their fiscal and debt positions. Additionally, Moody''s put the ratings of seven other Spanish sub-sovereign entities under review for downgrade.

Euro-zone annual inflation slowed to 2.5% in July and German retail sales surged 6.3% in June.

In Paris CAC-40 Index declined 43.56 to 1.17% to 3,669.10 and in Frankfurt DAX Index edged lower 62.25 or 0.87% to 7,127.81.

For the week, the CAC-40 Index plunged 4.52% and the DAX Index declined 1.9%.

Euro-zone Inflation Slows

Euro-zone annual inflation slowed to 2.5% in July, according to the flash estimate published by Eurostat today.

German Retail Sales Rise

Retail sales in Germany increased 6.3% on a monthly basis in June after adjusting to seasonal and calendar variations, reversing a 2.5% fall reported in May, according to data from the Federal Statistics Office released today.

Annually, retail sales declined 1% in June following a 3.1% increase in May.

Accor Sells Sofitel Arc De Triomphe

Accor SA said it would sell the Sofitel Arc de Triomphe in Paris to a consortium of French private investors for an enterprise value of €69 million.

This disposal confirms the Group’s ability to pursue its current €1.2 billion asset management program, which includes 35 sale and management-back transactions to be carried out in the period 2011-2012, mainly concerning Sofitel and Pullman units.

Gainers & Losers

Continental AG rose 1.17% to €69.00 after the German automotive supplier reported second quarter sales grew 13% to €7.53 billion from €6.66 billion in the prior-year quarter. Net income surged 160% to €314.8 million or 1.57 euros per share from €121.2 million or 0.61 euros per share last year.

Deutsche Börse AG fell 2.59% to €51.24 after the German stock exchange operator reported second quarter sales revenue fell 6% to €528.6 million compared with the prior year. Net income for the quarter increased 11% to €178.8 million or 0.96 euros per share from €160.8 million or 0.86 euros per share a year ago.

Electricite de France SA declined 1.65% to €26.56 after the French utility said first-half sales slipped 0.2% to €33.46 billion from €33.54 billion in the prior year. Net income for the period surged 54% to €2.55 billion or 1.38 euros per share from €1.66 billion or 0.90 euros per share in the same period last year.

European Aeronautic Defence and Space Co. NV gained 0.64% to €24.45 after the Airbus maker reported second quarter revenues grew 6% to €12.08 billion. Net income in the quarter surged 48% to €121 million from €82 million in the prior-year quarter.

HeidelbergCement AG dropped 1.34% to €38.31 after the German cement and building materials company reported second quarter turnover increased 3% to €3.39 billion. Net income in the quarter rose 26% to €219 million in comparison with €174 million in the same quarter last year.

Total SA slid 1,69% to €37.72 after the French multinational oil company reported second quarter sales increased 9% to €45.01 billion from €41.33 billion in the previous year. Net income decreased 12% to €2.73 billion or 1.21 euros per share from €3.10 billion or 1.38 euros per share in the previous year.