Spanish Debt Auction and a Rebound in Euro Lifts Markets

Arthi Gupta
15 Dec, 2011
New York City

European indexes gained after Spain raised

[R]1:30 PM Frankfurt – European indexes gained after Spain raised €6 billion in a debt auction and the euro rebounded and a ratings agency downgraded five European banks. Credit Agricole planned to cut 2,350 jobs. Old Mutual proposed selling its Nordic business for £2.1 billion.[/R]

European indexes traded higher after better than expected results of the Spanish Treasury auction and a slight rebound in the euro after dropping to a 10-month low.

The euro however, declined against the Swiss franc after the Swiss National Bank left its target rate at 1.20 franc.

Market sentiment has generally swung between cautious and negative as investors digest the immediate implications of the recently agreed fiscal compact.

Markets also focused on the latest note from the IMF that Greece is still behind in meeting its pledge to implement austerity measures and cut commitment to state controlled corporations.

In addition, Greece has still not finalized its deal with bond holders where it is seeking at least 50% reduction in the principal payment.

Fitch Ratings on Wednesday downgraded its investment-grade ratings on five European commercial banks, including France''s Banque Federative du Credit Mutuel and Credit Agricole, Finland''s OP Pohjola Group, Denmark''s Danske Bank A/S and the Netherland''s Rabobank Group, citing the stronger headwinds facing the banking industry in the euro zone.

The outlook on Danske is negative, while the other four banks have stable outlooks.

In Paris trading, the CAC-40 Index gained 18 or 0.6% to 2,994.17and in Frankfurt the DAX Index edged higher 54.81 or 1% to 5,729.91.

The Spanish Treasury sold €6.028 billion worth of debt against a target range of €3.5 billion today in the last auction for the year.

The Treasury sold €2.45 billion of the January 2016 bond at an average yield of 4.023% compared to 5.276% at its previous auction on December 1. The bid-to-cover ratio was 1.99 as against 2.8 two weeks ago.

The Treasury also sold €2.17 billion of the April 2020 bond at an average yield of 5.201% versus 5.006% at the previous sale on September 15 with the bid-to-cover ratio being 1.52.

In addition, the Treasury auctioned €2.17 billion of the April 2021 bond at an average yield of 5.545% compared with 5.433% in the previous auction held on October 20 with the bid-to-cover ratio being 1.52.

10-year Spanish bond yields fell after the auction to 5.524%.

The Swiss National Bank decided to maintain the minimum exchange rate of the Swiss franc as well as its key interest rate unchanged. The target range for the Libor remains between zero and 0.25%.

The HSBC flash purchasing managers’ index for the Chinese manufacturing sector rose to 49.0 in December from 47.7 the month before, according to the latest data published by Markit.

Euro-zone Inflation Steady

Euro-zone inflation held steady at a three year high in November as initially estimated, final data from Eurostat showed.

Annual inflation was at 3% in November. Inflation has been running ahead of the central bank''s target rate below but less than 2%, since December 2010.

German Private Sector Activity Rises

German private sector recovered in December, flash results of a survey by Markit Economics showed.

The composite output index, that measures activity in both manufacturing and services, rose to a four-month high of 51.3 in December from 49.4 in November.

Old Mutual Sells Nordic Business

Old Mutual plc announced that it intends to divest its Nordic business, Skandia Insurance Company Ltd, comprising Old Mutual''s long-term savings and banking operations in Sweden, Denmark and Norway operating under the Skandia brand, to Skandia Liv for SEK22.5 billion or £2.1 billion.

The company intends to use the proceeds of the transaction to reduce group debt and to return surplus capital to shareholders in due course.

Gainers & Losers

Credit Agricole SA fell 2.5% to €4.12 after the French lender said it would cut 2,350 jobs and expects to report a loss for 2011.

Hennes & Mauritz AB dipped 0.4% to SEK 209.20 after the Swedish apparel retailer reported group''s total sales in November including Value Added Tax increased 9% in local currencies from the previous year. In comparable units, sales fell 1%.

Sales in the fourth quarter rose 4% to SEK 36.17 billion versus SEK 34.79 billion last year, including VAT.

Rio Tinto PLC gained 1.1% to 3,069.50 pence after the miner extended its $4.70 cash per share offer for Canadian uranium miner Hathor Exploration to December 22.

Telefonica SA dropped 1.3% to €13.01 after the Spanish broadband and telecommunications provider trimmed its planned 2012 dividend by 14%, citing a ""significant change"" in economic and operating scenarios.