European Indexes Rebound After Spanish Debt Auction

Arthi Gupta
22 Nov, 2011
New York City

European indexes traded higher after Spain completed its first debt auction at a higher yield and rating agencies left U.S. debt rating unrevised. The Spanish Treasury sold

[R]1:00 PM Frankfurt – European indexes traded higher after Spain completed its first debt auction at a higher yield and rating agencies left U.S. debt rating unrevised. The Spanish Treasury sold €2.98 billion in debt today at higher yields. The Bundesbank lowered 2012 economic growth outlook for Germany.[/R]

European indexes edged higher after rating agencies maintained their U.S. credit ratings even after the bipartisan debt panel failed to reach a deal on deficit reduction yesterday.

The panel members on Monday admitted that panel is divided along the parties lines and differences are far too significant to meet the goal of debt reduction by $1.2 trillion over the next 10 years.

However, credit rating agencies Standard & Poor’s and Moody’s said they were not immediately downgrading the U.S. credit rating due to the failure of the talks.

But, Fitch Ratings said that it would conclude a review of U.S. sovereign credit ratings by the end of November.

Separately, Fitch on Monday said that capital and funding pressures on euro-zone banks may force them to cut funding to their subsidiaries in the central and Eastern Europe that will reduce credit in the region and weaker economic growth.

The European Central Bank on Monday bought bonds worth €8 billion, nearly double the amount of last week, from countries with unsustainable debt. However, it did not say which countries were concerned.

In another development, Belgium''s caretaker Prime Minister Elio Di Rupo offered his resignation to King Albert II on Monday, after failing to reach a consensus on next year''s budget.

World Bank increased its 2011 growth forecast for China but expects growth to moderate from next year. The Washington-based agency said in its East Asia and Pacific Economic Update that China''s economy will grow 8.4% in 2012 and experience roughly similar rates of growth in the following years.

In Paris trading the CAC-40 Index gained 31.42 or 1.1% to 2,926.36 and in Frankfurt trading the DAX Index edged higher 70.70 or 1.3% to 5,676.70.

Spain''s Rating Unchanged

Standard & Poor''s confirmed its ''AA-'' rating on Spain''s debt but with a negative outlook. The ratings agency however warned that the threat of a downgrade remains the same even though there is a change in government.

Spanish Bond Auction

The Spanish Treasury sold €2.98 billion of three- and six-month bills today after the general election at high borrowing costs. The agency planned to sell between €2 billion and €3 billion of bonds.

The Treasury sold €2.01 billion of three-month bills at an average yield of 5.11% compared with 2.292% in the previous auction held on October. The bid-to-cover ratio for the three-month notes was 2.85 compared with 3.07 times in October.

The Treasury also sold €970 million of six-month bills at an average yield of 5.227%, up from 3.302% in the previous auction last month. The bid-to- cover for the six-month debt was 4.92 compared with 2.59 in the last auction.

Bundesbank Lowers 2012 Growth Outlook

The Bundesbank on Monday slashed the 2012 economic growth outlook for Germany, citing weakening prospects for exports due to euro-zone''s debt crisis.

Germany’s central bank estimated the economy to grow between 0.5% and 1.0% next year, slower than the previous estimate of 1.8%.

Wärtsilä to Acquire Hamworthy

Hamworthy Plc, the oil and gas firm is to be acquired by Finnish group Wärtsilä for around £383 million.

Under the terms of the acquisition Hamworthy shareholders will receive 825 pence in cash per share or a total of £383 million.

Gainers & Losers

Allied Irish Banks Plc fell 1.4% to €0.07 after the Irish commercial bank agreed to sell its unit AIB Asset Management Holdings (Ireland) Limited to South African investment firm Prescient Holdings Limited. The financial terms of the deal were not disclosed.

Lafarge SA dipped 0.02% to €24.56 after the French cement maker’s chief executive Bruno Lafont reportedly said on a conference call that a reorganization of worldwide business at the company will not lead to further job cuts.

Sixt AG declined 1% to €14.19 after the mobility company said third quarter consolidated revenue increased 3.9% to €422.3 million from €406.5 million in the prior-year quarter. Earnings before taxes for the quarter rose 16.4% to €44.2 million, from €38.0 million a year ago.