European Markets Surge on Euro Agreement, Bond Yields Rise

Devan Biswas
09 Dec, 2011
New York City

European markets closed higher in a cautious trading after European leaders said they agreed on tougher debt and fiscal measures to avoid the repeat of debt crisis. The agreement was welcomed by the European Central Bank but no concrete steps were announced. Daimler AG gained and K+S declined.

[R]5:00 PM Frankfurt – European markets closed higher in a cautious trading after European leaders said they agreed on tougher debt and fiscal measures to avoid the repeat of debt crisis. The agreement was welcomed by the European Central Bank but no concrete steps were announced. Daimler AG gained after it said factories are operating near capacities. K+S dropped to an eighteen-month low.[/R]

European markets edged higher in the morning as the details of the summit agreement started filtering out. The positive mood was cautious on the lack of specifics to contain the crisis that is threatening from Greece to France and may reach Germany.

Market indexes and stocks gained in a cautious trading in the region after the euro zone leaders agreed to a fiscal compact that will limit the budget deficits and debts.

The newly agreed measures were acceptable to most nations in the European Union except Britain vetoed the proposal. Hungary was the lone supporter to the veto and two other nations Czech Republic and Sweden said they will consult their parliaments and parties.

The intergovernmental pact among the euro zone is expected to be approved by at least 23 nations as early March and by three more nations by June. UK is the lone standout against the deal.

The euro traded lower and then rebounded against the dollar and the yen in trading. One euro fetched $1.335 and British pound strengthened to $1.566 and the dollar decreased to 92.35 Swiss franc cents.

Comments from the European Central Bank President Mario Draghi did not provide any support to the sovereign bond markets. While Draghi welcomed the fiscal and financial integration he stopped short of increasing the size of bond purchases and officials confirmed that the weekly purchase program of €20 billion will stay for now.

The yield on 10-year bonds of Italian government increased 8 basis points to 6.51% and the yield on Spanish bonds added 9 basis points to 5.84%.

Herman Van Rompuy, president of the European Council said leaders agreed to provide €200 billion in additional resources to the IMF for emergency lending to the European nations.

The euro zone will provide €150 billion and non-euro zone member nations Sweden and Denmark agreed to additional funding of €50 billion for the IMF.

However, the summit of the leaders postponed till March to increase the size of its bailout fund of €440 billion that most economists believe needs to be leveraged to €1 trillion.

In Frankfurt trading, DAX Index gained 1.9% or 112.27 to 5,986.71 and CAC 40 Index added 2.5% or 76.86 to 3,172.35. Market indexes in Spain gained 2.2%, in Milan soared 3.4%, in Athens gained 1.6% and in Switzerland inched up 1%.

For the week the CAC 40 closed flat and the DAX 30 edged 1.6% lower.

Stock Movers

European banks traded higher despite a rating agency downgrade of three largest French banks.
Societe Generale SA gained 45 cents to €19.56, Credit Agricole SA inched up 19 cents to €4.80 and BNP Paribas added 4.5% to €32.51.

Intesa Sao Paolo SpA soared 10 cents or 8% to €1.28 and UniCredit SpA surged 7% or 5.3 cents to 80 cents.

Insurers also participated in the rally. AXA gained nearly 2% and in Allianz gained 2.7%.

Africa Barrick Gold Plc dropped 2% to 509 pence after the gold and silver miner in Tanzania said fourth quarter production will be lower than its forecast on electricity power interruptions.

Daimler AG gained 1.35 to €34.16 after the maker of luxury vehicles in Germany said it plans to expand its production in China and in the U.S. as it operated near full capacity. The company plans to invest by 2014 $2.4 billion.

K+S declined 2.7% to €35.08 and dropped to a new low in eighteen months after the world’s largest fertilizer maker said is scheduled a mine closure in January first week that may last six weeks.