Italian, French Yields Rise as Monti Forms Government; Vivendi Up

Devan Biswas
16 Nov, 2011
New York City

Stock markets in the European region declined as bond yields remained high. French bonds spread to German bund rose to a record high of 195 basis points. UK jobless rate in third quarter increased to 8.3%. Vivendi lowered annual income outlook.

[R]4:40 PM Frankfurt – Stock markets in the European region declined as bond yields remained high. French bonds spread to German bund rose to a record high of 195 basis points. UK jobless rate in third quarter increased to 8.3%. Vivendi lowered annual income outlook.[/R]

The trading sentiment in Europe remained on the edge as Italy is set to announce a new government. However, bond market yield continue rise across the region.

Italian Prime Minister designate Mario Monti is expected to announce a 16-member government that includes technocrats and no politicians. Monti kept control of the key economy portfolio.

The formation of new government was welcomed by markets in the region but investors are increasingly factoring in a possibility of sharply higher interest rates.

Italian bond yield traded above 7% and the yields on Spanish bonds were also near the record level.

In addition, German Chancellor Angela Merkel at an industry association reiterated her opposition to common euro zone debt because that will remove incentives for governments to implement budgetary reforms.

The bond market rout is slowly spreading to the core of the euro zone as speculators target France, Holland, Austria and Belgium.

France and Germany are at odds over whether the European Central Bank should intervene and bring down the bond market yields.

So far the limited intervention from the central bank has not calmed the markets and spread of French bonds to German bunds increased 5 basis points to 195 basis points.

The ECB has purchased so far €187 billion of peripheral euro zone bonds and added to its holdings after more purchases in the last two days of Italian and Spanish bonds.

The euro was under pressure in Frankfurt trading and declined to $1.342 on the worries that the technocratic governments in Greece and Italy will fall short of market expectations.

In Paris, the CAC-40 Index rose 9.37 or 0.3% to 3,058.50 and in Frankfurt the DAX Index edged lower 55.75 or 1% to 5,877.39.

Market indexes in Stockholm fell 0.16% and in Zurich were flat, in Milan gained 0.4%, in Athens edged up a fraction and in Madrid added 0.8%.

UK Jobless Rate at 8.3%

The UK unemployment rate soared to a 15-year high according to the latest data released by the Office for National Statistics in London.

The jobless rate in the third quarter soared to 8.3% and increased 129,000 to 2.62 million. Unemployment rate among young people increased above 1 million for the first time since 1992.

Jobless claims increased by 5,300 to 1.6 million in October and number of people in employment declined 197,000 in the last quarter.

Stock Movers

Vivendi increased 76 cents to €16.24 after it lowered annual net outlook on higher tax rate.

Vivendi, the largest media and telecom group in Europe reported third quarter net income declined 35% from a year ago to €241 million.

The media group also lowered its full-year adjusted earnings outlook to €2.85 billion from its previous target of €3 billion. The company plans to cut its debt from €13.3 billion at the end of September to €13 billion.

Chief executive Jean-Bernard Levy also lowered debt target on the balance sheet to €14 billion from €14.5 billion and said that the company will pause from acquisition for a while.

Vivendi lowered its stake by 3% to 60% in the game maker Activision Blizzard after it sold 35 million shares that raised $426 million. And last week the company completed the purchase of recorded music library for €1.4 billion.

The company also acquired full control of its profit generating mobile group SFR after Vodafone agreed to sell minority stake in the company for €7.95 billion.

Stora Enso declined 1% after the paper mills operator said it began talks with the unions to cut production and temporary lay-offs in the first half next year to cut paper and board production on weak demand.

Luxoticca Group SpA increased 49 cents to €21.74 after the largest eyewear maker signed an agreement ahead of its 10-year exclusive license agreement with Giorgio Armani group. Armani currently has an agreement to sell its licensed eyewear products with Safilo that expires at the end of 2012.

Safilo Group surged 10% or 40 cents to €4.71.