European Indexes Soar 5%; Italy Sells

Nichole Harper
27 Sep, 2011
New York City

European markets soared on the hopes that the Greek crisis may be contained. The market indexes in Germany, France and Milan soared more than 5%. Italy completed the sale of

[R]4:30 PM Frankfurt – European markets soared on the hopes that the Greek crisis may be contained. The market indexes in Germany, France and Milan soared more than 5%. Italy completed the sale of €14.5 billion of debt at a sharply higher yield.[/R]

European markets surged between 3% and 5.5% after the European policymaker appear close to finalizing plans to expand the rescue fund and use the unlimited printing authority of the ECB to sell more bonds.

The talks also focused on cutting the Greek debts by half and recapitalizing the banks in the euro region.

The DAX 30 index increased 5.3% or 282.88 to 5,628.44, CAC-40 index gained 5.7% or 164.04 to 3,023.38 and FTSE 100 index soared 4% to 5,294.05.

The benchmark indexes in Athens soared 4.5%, in Stockholm surged 6.2% and in Zurich added 3%. The index in Milan jumped 5.9% and in Madrid gained 4%.

The euro rebounded to $1.345 but investors confidence was fragile after Spanish minister Elena Salgado said the plans to extend to €2 trillion are not at a discussion stage.

The plan includes leveraging €440 billion fund and use the unlimited money printing authority of the European Central Bank to issue the euro zone bonds guaranteed by all 17 member nations. The ECB will lend money to the EFSF against its collateral of core capital.

The Greek Prime Minister George Papandreou is visiting Berlin today, 2-day before German lawmakers are set to approve the final tranche of Greek bailout and expand the euro zone rescue fund.

He urged a meeting of business leaders in Berlin to unite and focus on the good of the Europe. He added “the euro zone must now take bold steps towards fiscal integration to stabilize the monetary union.”

Chacellor Angela Merkel said in a speech at the same gathering, “If Europe isn’t doing well, then over the medium term Germany won’t do well.”

The European Financial Stability Facility is close to getting approval from 9 of the 17 member nations and Finland and Greece are close to agreeing on the terms of the collateral. Only six member nations have approved the creation of the rescue fund.

Separately, the IMF chief Chrisitine Lagarde asked Greece to provide written guarantees of timetable for the new austerity measures and estimated government revenues.

In Athens, Greek parliament later today is expected to approve a controversial property tax and new austerity measures that will cut government staff salary cuts by 20% on top of the 15% cuts proposed few months ago.

Italy completed the sale of €14.5 billion of bonds today and is expected to issue at least €85 billion of debt before the end of the year. The yield on 10-year bond declined to 5.6% but stayed 100 basis points above a level last seen a month ago.

Italy sold €8 billion of 182-day bills to yield 3.071%, higher than 2.14% yield in the last auction a month ago. The Treasury also sold €3.5 billion of 2013 bonds that yielded 4.511% and €3 billion of 76-day bills at 1.808% yield.

Stock Movers

LyondellBasell Industries NV ((LYB)) increased 4% to $30.15 and it said its French refinery will start talks to shut down the 105,000 barrels a day operation as it failed to find a buyer.

French workers union CGT officials told Reuters that they are expected to meet tomorrow to discuss possible strike. The Lyondell refinery site Berre Industries also has four other refineries operated by ExxonMobil, Total and Ineos.

BNP Paribas soared 14% to €30.05 on the hopes that the rescue fund creation will wall off the widening debt contagion in the euro zone.

BNP Paribas confirmed yesterday that its goal of reaching 9% in common equity Tier 1 meeting the Basel III requirements by the end of Jan 2012 includes 30 basis points charge on the capital on the mark-to-market of €20.8 billion of Italian sovereign debt.

Socitete Generale SA increased 16.5% to €20.50 after the bank reiterated again that its exposure to Greek bonds will only contribute to the losses between €100 million and €150 million and has a total portfolio of €4.3 billion of sovereign bonds issued by Portugal, Spain, Italy, Ireland and Greece.