Monti Crosses First Hurdle; Contagion Fears Drag Indexes

Arthi Gupta
18 Nov, 2011
New York City

European indexes declined on worries about the debt contagion to bigger euro area countries. The Italian Prime Minister Mario Monti won a vote of confidence in the Senate. UBS outlined plans to expand its wealth management unit and cut 2,000 staff in investment banking unit.

[R]1:00 PM Frankfurt – European indexes declined on worries about the debt contagion to bigger euro area countries. The Italian Prime Minister Mario Monti won a vote of confidence in the Senate. UBS outlined plans to expand its wealth management unit and cut 2,000 staff in investment banking unit.[/R]

European indexes extended losses on fears of a debt contagion spreading to the larger euro area nations.

Also, a lack of consensus between Germany and France on the role of the European Central Bank to solve the sovereign debt crisis raises concerns over the sustainability of the euro.

Monti Wins Confidence Vote in Senate

Italy''s new technocrat Prime Minister Mario Monti won a vote of confidence in the the Senate, in a 281-to-25 vote on Thursday. The Northern League, however, voted against him.

The Monti government faces another confidence vote in the lower house of parliament, or the Chamber of Deputies on Friday.

However, traders remained skeptical about the new government''s ability to implement reform measures to reduce Italy''s huge debt burden after the country''s borrowing costs has risen to critical levels in the last few days.

Elsewhere, several Italian towns and cities witnessed protests marches as thousands of students took to the street to protest against the austerity measures proposed by the Monti government.

The International Monetary Fund said that it will release the next tranche of the bailout fund due to Greece only if broad political support for the measures under Greece''s fiscal program is assured.

Greek opposition party leader Antonis Samaras has opposed to offering a written guarantee that Greece will implement the austerity measures and also work towards lowering its total debt regardless of who wins the next government.

The letter was demanded last week by the European Central Bank.

In Paris, the CAC-40 Index declined 17.18 or 0.6% to 2,993.11 and in Frankfurt; the DAX Index edged lower 45.47 or 0.8% to 5,804.41.

For the week, the CAC-40 Index plunged 5% and the DAX Index slumped 4.2%.

Yields on 10-year Italian government bonds fell from 6.98% to 6.78%, down 13.5 basis points. Spanish 10-year yields declined to 6.44% after rising as far as 6.55%.

European Central Bank President Mario Draghi said in a speech at the European Banking Congress in Frankfurt that measures to make the euro rescue fund fully operational must be expedited.

He said that the European Financial Stability Facility was launched more than one and half years ago and four months have passed since the European leaders decided to make the full EFSF guarantee volume available.

""Where is the implementation of these long-standing decisions?"" Draghi asked.

However, German Chancellor Angela Merkel has refused to issue joint euro area bonds or to allow the European Central Bank to play a larger role in resolving the debt crisis, whereas France wants the central bank to participate more actively to stem the crisis.

The European Central Bank has set itself a weekly limit of €20 billion for its purchases of euro-zone bonds, according to German daily Frankfurter Allgemeine Zeitung

German PPI Eases

German producer price inflation slowed to 5.3% from a year ago in October, from the 5.5% increase in September, data from the Federal Statistics Office showed today.

UBS Outlines Future Plans

UBS AG said it plans to downsize its investment bank and increase focus on its wealth management businesses as part of its strategy.

The company said it targets to reduce the current Sfr300 billion Basel 3 risk-weighted assets in the investment bank by about Sfr145 billion, or almost 50% and also, plans to eliminate around 2,000 jobs at the investment bank by the end of 2016.

BMW Acquires Stake in SGL Carbon

BMW AG, the German automaker said it has obtained a 15.16% stake in SGL Carbon SE. The financial details of the deal were not disclosed.

Gainers & Losers

ACE Ltd. fell 2.4% to $67.09 after the insurance and reinsurance organization said that its board of directors will recommend to shareholders a 33% increase in the company''s quarterly dollar-denominated dividend, from $0.35 per share to $0.47 per share.

Bayer AG dipped 0.9% to €46.36 after the chemical and pharmaceutical company announced expansion plans in Asia.

ProSiebenSat.1 Media AG, the Germany-based broadcasting company plunged 4.1% to €13.42 on a brokerage downgrade.

Rio Tinto Plc fell 0.8% to 3,298.50 pence after the miner raised its all-cash offer for Canadian development-stage uranium company Hathor Exploration Ltd. to C$4.70 per share, trumping Cameco''s hostile bid of C$4.50 per share.