Second Day Strike in Greece; Spanish Banks Downgraded

Arthi Gupta
20 Oct, 2011
New York City

European indexes traded lower on worries that the sovereign debt crisis may drag longer than expected. Protests in Greece turned violent as the parliament debated before the final vote today on additional austerity measures. Top five Spanish banks were downgraded by Moody

[R]1:30 PM Frankfurt – European indexes traded lower on worries that the sovereign debt crisis may drag longer than expected. Protests in Greece turned violent as the parliament debated before the final vote today on additional austerity measures. Top five Spanish banks were downgraded by Moody’s.[/R]

European indexes edged lower as European leaders haggled to chalk out a comprehensive plan to resolve the debt crisis.

An emergency meeting late on Wednesday by German Chancellor Angela Merkel and French President Nicolas Sarkozy ended up without any major decision making ahead of the crucial euro-zone summit on October 23.

The Greek parliament votes today on fresh spending cuts demanded by the EU and IMF to release sixth instalment of the bailout funds.

In a show of solidarity yesterday, the Greek union led strike saw nearly 100,000 people taking to the streets and clashing violently with police. Airports, schools, retail shops and petrol stations remained closed.

The protests are aimed against a bill likely to be passed today by the parliament that will cut public sector pay and pensions by 25%, increase taxes, a suspension of collective wage bargaining in the private sector, and the laying off of 30,000 civil servants.

Greek lawmakers late on Wednesday gave their preliminary approval in favor of the measure, with 154 lawmakers in favour and 141 against and five abstained.

In another major move, the European Commission wanted EU Internal Market Commissioner Michel Barnier to prohibit rating agencies, if necessary, to publish judgments about ailing EU countries, according to The Financial Times Deutschland.

In a confidential preliminary plan to reform the law on credit rating agencies Barnier proposes that the new European Securities and Markets Authority is granted the right ""to temporarily prohibit"" the disclosure of assessments of the ability to pay, the newspaper said today.

The bill is to be submitted to EU countries and the European Parliament in November and could come into force as early as autumn 2012.

Separately, the latest official estimate that banks need €80 billion to recapitalize and the IMF estimated €200 billion and that was before two months of weakness in bond markets.

In Paris the CAC-40 Index declined 23.86 or 0.8% to 3,133.48 and in Frankfurt the DAX Index edged lower 30.92 or 0.5% to 5,882.50.

The bond yield spread between French and German bunds were elevated.

The yield on 10-year French bonds declined 2 basis points to 3.18% and German bunds edged lower 2 basis points to 2.08% and the yield spread declined to 111 basis points from the record 115 basis points this week.

Moody’s cut its ratings for five Spanish banks - Banco Santander, BBVA, CaixaBank, La Caixa, and CECA with negative outlook.

The move to cut the ratings of five largest banks adds urgency to tackle debt contagion in the region as the banks in France and Italy are expected to be downgraded in the next two months.

German Producer Price Inflation Flat

Germany''s producer price inflation remained unchanged in September. The producer price index increased 5.5% from a year ago in September, unchanged from the rate of growth recorded in August.

Gainers & Losers

Actelion Ltd. plunged 12.1% to Sfr29.90 after the Swiss biotech firm said third quarter net revenues dropped 11% to Sfr401.8 million from Sfr451.2 million in the same quarter a year earlier.

Akzo Nobel NV gained 2.3% to €35.67 after the Dutch specialty chemicals firm said third quarter revenue increased 5% to €4.05 billion from €3.87 billion in the prior year. Profit attributable to shareholders of the company declined 37.4% to €149 million from €238 million last year.

Adjusted earnings per share dropped to 91 cents from €1.19 in the prior year.

Telefon AB L.M. Ericsson soared 6.2% to SEK 69.55 after the maker of network equipment said third quarter net sales in the quarter rose 17% to SEK 55.5 billion compared with 47.5 billion last year. Net profit rose 3.8% to SEK 3.82 billion from SEK 3.68 billion a year ago.

Nestlé S.A. dipped 0.5% to Sfr51.30 after the Swiss food maker reported a 7.3% rise in organic sales for the first nine months, including 4.1% real internal growth and price increase of 3.2%.

However, total group sales dropped 13.5% for the nine-month period to Sfr60.89 billion from prior year''s Sfr70.41 billion, reflecting negative impacts of currency and divestitures.

Nokia Oyj surged 9.1% to €4.89 after the Finnish mobile maker reported third quarter net sales fell 13% to €8.98 billion, from €10.27 billion in the same period a year ago. Net loss, on a reported basis, was €68 million or €0.02 per share compared to profit of €529 million or €0.14 per share in the same quarter last year.

Publicis Groupe SA declined 4.1% to €33.47 after the French advertising group reported third quarter consolidated revenues increased 7.5% to €1.419 billion from €1.320 billion in the same quarter last year. Organic growth was 6.4% in the quarter.

Schneider Electric SA slumped 7.7% to €41.16 after the specialist in energy management reported third quarter total sales of €5.7 billion, up 4.6% on a current structure and exchange rate basis, from last year. Organic sales in the quarter rose 7.7% compared with a year ago quarter.