European Markets Close Positive; Euro Drops

Bikram Pandey
09 Aug, 2011
New York City

European markets rebounded after dropping as much as 3% in the morning. The sharp reversal in New York trading ahead of the Fed meeting lifted the sentiment. Belgium based insurance and banking group KBC reported higher than expected earnings. London riots continue for the third day.

[R]4:30 PM Frankfurt – European markets rebounded after dropping as much as 3% in the morning. The sharp reversal in New York trading ahead of the Fed meeting lifted the sentiment. Belgium based insurance and banking group KBC reported higher than expected earnings. London riots continue for the third day.[/R]

The European markets opened lower for the third day in a row as investors avoided risky assets. The indexes in Paris and Frankfurt in the early morning trading declined as much as 3% but rebounded after the U.S. market opened 1.4% higher.

The yield on Italian bonds also dropped for the second day after the ECB intervened in the market. The intervention has focused more on the Italian bonds with shorter term maturities of 5- and 10-year bonds.

The ECB did not disclose the scale of the intervention but traders estimated it to be between 4 billion euros and 8 billion euros.

Italian 10-year bond yield dropped 18 basis points to 5.145% and Spanish bond yield fell 17.3 basis points to 5.04%.

The French bond yield rose 5 basis points to 3.21% and continues to trend higher as investors worry that the Belgian and the French bonds may need some kind of the ECB support.

In Paris, CAC-40 Index increased 25.68 to 0.8% to 3,150.17 and in Frankfurt DAX Index plunged 88.37 or 1.5% to 5,834.90. The benchmark indexes in the morning dropped close to 3%.

In the last week, the CAC-40 Index plunged 10.21% and the DAX Index plummeted 13.68%.

Market indexes in Spain fell 2% and in Italy dropped 1% and in Zurich dropped 1.5%.

The euro fell to $1.403 from $1.413 and recovered from its low against the Swiss franc to 1.0605 from 1.0475 according to the data tracked by the EBS data. The franc has added 15% against the euro and could reach parity against the euro.

The Swiss franc also gained to record high against the U.S. dollar to 0.7358 franc from 0.7405 franc yesterday.

Crude oil traded higher in London after energy futures traded up in New York. Brent crude gained $1.51 to $105.31 and in New York gained $1.15 to $83.05.

Greek Bank Deposits Decline 20%

Greek businesses and households removed more deposits from the banking system in June. The Greek central bank said the deposits declined for the sixth month in a row and fell 1.9% to 188.2 billion euros.

The deposits have declined 21.4 billion euros or 10% since January and fallen 49 billion euros or 20% from January 2010 since the Greek crisis erupted.

Riots in London continued for the third day and spread to at least four cities. Bristol, Birmingham and three locations in London reported random looting and violence and the government deployed 16,000 more police.

Stock Movers

Banks in Italy and Spain traded higher after the ECB was active for the third day in the bond market supporting Italian and Spanish bonds.

Spain based Santander increased 30 cents to 6.80 euros and Banco Bilbao Vizcaya Argentaria SA added 10 cents to 6.70 euros.

UniCredit declined 2 cents to 1.07 euros and Intesa Sao Paolo added 1 cent to 1.31 euros.

BNP Paribas fell 25 cents to 39.06 euros and Societe Generale SA added 81 cents to 25.92 euros. Credit Agricole SA gained 8 cents to 6.84 euros.

RWE AG dropped as much as 7% to 28.52 euros after it reported second half net declined and lowered its full year outlook on the cost of winding down the old nuclear power plants.

E.ON AG dropped 7% to 15.35 euros.

Yara, Europe’s largest nitrogen fertilizer maker dropped 6.3% to 236.71 kroner on negative comments from an analyst at Bank of America Merrill Lynch.

KBC gained 5% to 21.62 euros after the Belgium based banking and insurance group reported second quarter profit of 528 million euros that included 102 million impairment charges related to Greek bonds.

The bank also said at the end of the quarter its exposure to Greek bonds was 500 million euros, 2.2 billion to Spain government bonds and 6.1 billion to Italian government bonds.

The bank also confirmed its plan to sell its Polish units KredytBank and Warta, British brokerage Peel Hunt and its Asian derivatives unit.