Spanish Economic Growth Halts; Credit Suisse Cuts 1,000 Jobs

Devan Biswas
31 Oct, 2011
New York City

European indexes declined and yields on Italian and Spanish bonds gained. Belgium completed the sale of

[R]4:30 PM Frankfurt – European indexes edged lower and yields on Italian and Spanish bonds gained. Belgium completed the sale of €2.2 billion bonds at higher yields. Bank of Spain said economic growth grounded to a halt in the third quarter and Spain is likely to miss its deficit target this year. Credit Suisse Group announced job cuts of 1,000.[/R]

European markets declined on the first day of trading on the worries that implementation of bank recapitalization plan may tougher than expected. Credit Suisse Group announced 1,000 jobs elimination and the yields on Spanish and Italian bonds increased.

The Organization for Economic Cooperation and Development revised its outlook lower for the economy in the European region. The economic growth estimate for the year 2012 was lowered to 0.3% from the previous estimate of 2%. The growth in the current year is estimated at 1.6%.

The statistics agency of the European region, eurostat said inflation in the 17-member euro zone was steady at 3%, higher the target set by the European Central Bank. Italian inflation jumped to 3.8% from 3.6%.

Unemployment in the region increased to 10.2% in September from 10.1% in August. Outlook for the labor market does not look bright. Spain led the unemployment rate in the region with 22.6% followed by 17.6% in Greece. Italian unemployment increased to 8.3% from 8% after the increased in value added tax.

In Paris, the CAC-40 Index fell 69.19 or 2% to 3,279.44 and in Frankfurt the DAX Index edged lower 144.1 or 1.5% to 5,617.09.

The indexes in Stockholm fell 2.1%, in Madrid dropped 1.4%, in Milan fell 2.7% and in Zurich dropped 0.9%. The index in Athens fell 0.8% and in UK dropped 1.5%.

Spain Faces Rising Deficit

Bank of Spain estimated economic growth in the third quarter ending in September was zero compared to the second quarter when the economy expanded at 0.2%. The economic growth in the third quarter from a year ago increased 0.7%.

The central bank said the internal demand probably declined 0.8% in the quarter and external demand that drove exports and tourism increased by the same.

The Bank of Spain also estimated that Spain is likely to miss its deficit target of 6% in the year after it ran a deficit of 9.3% of the GDP.

Italian Yields Rise

The yields on the Italian and Spanish bonds were on the rise for the second day in a row. Italian 10-year bond yield gained and traded near 6.11% from 5.9% last week.

Italian Prime Minister Silvio Berlusconi faced another criticism and a call to resign. Chairman of Intesa Sao Paolo Giovanni Bazoli said at a conference in Milan that credit markets are expected to tighten in the near future if sovereign bond market tensions persist.

Luca Cordero Montezemolo, Chairman of Ferrari in a letter published in the daily La Repubblica asked the Prime Minister Berlusconi to resign. He said in the letter, “The prime minister has to realize that the only way to save the country is through a government of public safety.”

Last week, Italy completed the sale of €7.94 billion, lower than expected. The yield on 10-year bond increased 9 basis points to 5.97%, near 6.1% high reached in the previous week.

Belgium Treasury sold 2.155 billion bonds maturing in 2014, 2017 and 2021 and yield on 10-year bond increased 9 basis points to 4.42%.

Gainers & Losers

Credit Suisse Group AG declined 3.7% to $29.72 in New York trading after the Swiss investment bank and broker said it will eliminate 1,000 additional jobs according to a Swiss newspaper report.

The daily news paper Tages-Anzeiger said that the cuts will be in the investment banking unit in the U.S. and in London and at its wealth management unit. Two independent sources in New York and London confirmed the internal memo.

Earlier in July the Swiss bank cut 2,000 jobs to lower its operating cost by Sfr 1 billion and meet revised capital reserve requirements.

Deutsche Bank AG plunged 6.8% to €30.96, BNP Paribas SA fell 7.4% to €33.65 and Societe Generale SA tumbled 7.9% to €21.54.

Intesa Sao Paolo SpA declined 9 cents to €1.31 and UniCredit SpA decreased 4 cents to 85 cents.

HSBC Holdings plc decreased 2.5% to 551.10 pence and Barclays declined 1.6% or 198 pence.

BMW AG decreased 4% to €59.37, Volkswagen AG fell 1.1% to €115.05 and Daimler AG declined 4% to €37.66.