German Growth Estimates Lowered; Eni, Repsol Up

Devan Biswas
20 Dec, 2011
New York City

European markets closed higher after a German survey pointed to higher business confidence. However, three other institutes lowered their outlooks for German economy and predicted at best flat economic growth.

[R]4:00 PM Frankfurt – European markets closed higher after a German survey pointed to higher business confidence. However, three other institutes lowered their outlooks for German economy and predicted at best flat economic growth.[/R]

Stocks in European markets traded higher after investors focused on the latest confidence survey that showed a slight increase in Germany and three other institution offered weak outlook for German economic growth.

The business climate index tracked by Germany based Ifo Institute increased to 107.2 in December from 106.6 in November. The survey of 7,000 German businesses indicated that the monthly gain was the largest since February on the stable domestic demand.

However, IMK, another research group lowered its estimate of German economic to shrink 0.1% from the earlier estimate of 0.7% increase in October.

Think tank RWI lowered its growth estimate to 0.6% from 1% and IfW reduced its growth view to 0.5% from the previous estimate of 0.8%.

In Frankfurt trading, DAX 30 index increased 53.40 or 0.9% to 5,724.11 and CAC 40 index added 25.76 to 2,999.96. Across the region, the benchmark index in Spain increased 0.7%, in Italy gained 0.9%, in Switzerland fell 0.4% and in Sweden added 0.6%.

The economic growth outlook across the region is dim and economists are lowering their estimates as exports slowdown and manufacturing in Germany and Italy struggles.

Ireland, Greece and Spain are in recession and Germany, France, Belgium and Italy are already in early stages of recession. Spain’s recently appointed prime minister in his first address to the parliament said today that his government will propose specific steps to meet budget deficit targets by the end of the year and promote consolidation of banks.

Bond yields in the euro zone edged lower ahead of 3-year tender offer from European Central Bank tomorrow. The demand for cash is high but investors are uncertain how banks will use the cash. Bank may purchase debts of peripheral nations in the euro zone or roll over its debt.

The short term debt rallied ahead of the ECB tender which is expected to be the favorite collateral.

Yield on 10-year bonds of Italy declined 18 basis points to 6.69%, Spanish bonds fell 11 basis points to 5.15% and German bond inched up to 1.92%. The yield on 2-year Spanish Treasury bills declined 11 basis points to 3.44%.

Euro zone finance ministers agreed to provide additional funding of €150 billion of additional commitment to increase IMF funding. The additional funding will help the multilateral institution to permit more lending to peripheral euro zone nations, even though that will violate the IMF charter and break the spirit of European Union treaty.

Stock Movers

Deutsche Telekom decreased 3 cents to €8.88 after AT&T agreed to drop its merger proposal for U.S. based T Mobile unit for $39 billion and pay $4 billion breakup fee.

Eni S.p.A. increased 16 cents to €15.29 and the Italian state controlled oil explorer said it signed a production agreement with Angola based Sonangol for an off-shore Block 35. Eni will control 30% of project, Spain based Repsol Exploration holds 25% and Sonangol controls 45%.

BNP Paribas SA increased €1.76 to €30.18, Credit Agricole SA and Deutsche Bank gained €1.36 to €28.53.

BASF added €1.68 to €52.83, Vinci SA increased €0.58 to €32.08 and Hochtief AG edged 26 cents lower to €42.30.

Vivendi SA increased 31 cents to €16.31 and France Telecom SA added 8 cents to €11.80.