Italian Bond Yields Rise; Euro-zone Production Drops

Arthi Gupta
14 Dec, 2011
New York City

European indexes edged lower after the U.S. Federal Reserve left key rate near zero and did not announce new stimulus measures. The Italian Treasury sold

[R]12:30 PM Frankfurt – European indexes edged lower after the U.S. Federal Reserve left key rate near zero and did not announce new stimulus measures. The Italian Treasury sold €3 billion of five-year bonds and Germany sold €4.2 billion of two-year bonds today. Areva planned to slash 1,200 jobs in Germany.[/R]

European indexes traded lower after the U.S. Federal Reserve did not announce new stimulus measures and left key lending rate near zero.

Market sentiment was weak after a private latest assessment of the economic conditions in Germany pointed to a sharp slowdown next year. German economic growth is expected to slow to near halt and may face recessionary conditions in the first half.

In Europe, German Chancellor Angela Merkel rejected the idea of raising the lending limit of the European Stability Mechanism, the future bailout fund that currently stands at €500 billion.

The indexes traded lower as bond market yields rose and inched closer to record high but Italy completed the sale of bonds. Market also overlooked the rating agency downgrade of Spanish banks.

Moody''s downgraded the subordinated debt ratings for 21 Spanish banks because it no longer considers them to be able to rely on government support in the face of the country''s difficult economic situation.

The Italian Treasury sold €3 billion of five-year bonds at a higher yield of 6.47% compared to 6.29% at the previous auction on November 14. Demand was 1.42 times the amount on offer compared with 1.47 times last month.

Germany sold €4.2 billion of two-year bonds at an average yield of 0.29% compared with 0.39% at the last auction. The bid-to-cover ratio was 1.4 times, up from 1.1 the last time.

Separately, the Ifo Institute slashed its forecasts for the German economy this year and the next, citing weakening world economy and the European debt crisis. Ifo estimated 2012 gross domestic product growth at 0.4% compared to 2.3% growth predicted in June and the estimate for the current year was lowered to 3% from 3.3%.

In Paris trading, the CAC-40 Index declined 42.57 or 1.4% to 3,036.02 and in Frankfurt the DAX Index edged lower 41.39 or 0.7% to 5,733.68.

Euro-zone Production Drops

Euro-zone industrial output dropped 0.1% on a monthly basis in October, after falling 2% in September, Eurostat said today.

Spanish Inflation Eases

Spain''s consumer price annual inflation eased to 2.9% as initially estimated in November, from 3% in October.

Gainers & Losers

Areva SA fell 1.6% to €19.22 after the French nuclear firm said it is implementing a strategic plan for the period 2012-2016, which makes nuclear safety a strategic priority for the industrial and commercial performance of the group. The company said it will cut workforce by 1,200 largely in Germany.

Industria de Diseno Textil or Inditex SA soared 4.2% to €84.29 after the Spanish textile and apparel company reported net sales for the first nine months rose 10% to €9.71 billion compared to €8.87 billion in the previous year.

Net income for the period grew 10.2% to €1.30 billion or 2.09 euros per share from €1.18 billion or 1.89 euros per share a year earlier.

Sequans Communications S.A. plunged 5.1% to $3.54 after the LTE chip manufacturer estimated revenue of about $11 million and non-IFRS net loss per American Depository Share of $0.17 and $0.18 for the fourth quarter.

Swisscom AG climbed 0.2% to Sfr345.80 after the provider of telecommunication services estimated fiscal year 2011 net profit to lower by Sfr1.2 billion on Fastweb impairment and the difficult economic situation in Italy.