Hungary, Greece Worries in the Euro Zone; Italian Yields Fall

Arthi Gupta
13 Jan, 2012
New York City

European markets gained after Italy sold

[R]1:00 PM Frankfurt – European markets gained after Italy sold €4.75 billion of debt today at lower yields. Inpex and Total finalized $34 billion Ichthys LNG Project in Australia. BMW and Daimler planned to ramp up production at U.S. plants and add 1,500 new jobs.[/R]

The benchmark indexes in Europe traded higher after Italy successfully sold €4.75 billion of debt at lower borrowing cost.

For the week, the governments of Germany, Italy and Spain raised €30 billion in sovereign bonds sales at yields that were sharply lower than the previous auctions. The yields fell after the European Central Bank offered nearly €480 billion in to banks just before the end of 2011.

Italy Debt Auction

The Italian Treasury sold €3 billion of 6% November 2014 bonds at a yield of 4.83%, less than 5.62% it paid at an auction on December 29. Demand was 1.22 times the offer, down from 1.36 in the previous sale.

The agency also placed €779 million of 4.25% July 2014 bonds to yield 4.29%, down from 4.93% in a previous auction in October. The bid-to-cover ratio rose to 2.28 from 1.35.

The country also sold €971 million of 4.5 percent August 2018 bonds at a yield of 5.75%. Demand was 1.61 times the offer.

Italian 10-year bond yields fell 16 basis points to 6.497%.

The International Monetary Fund Managing Director Christine Lagarde met a Hungarian delegation led by Minister Tamas Fellegi, the country''s chief negotiator for financial aid yesterday.

The IMF chief reiterated that ""tangible"" steps are needed by the Hungarian authorities to stabilize the country’s economy. She also added that support of the European authorities and institutions would also be critical for successful discussions of a new program.

Separately, the International Monetary Fund said it is watching keenly the private-sector involvement in the Greek financing package.

Director of External Relations for the IMF Gerry Rice said on Thursday that the objective is still to reduce the Greek debt-to-GDP ratio to 120% by 2020. He added further that once Greece and its creditors come to a formal agreement, the Fund will evaluate whether it''s consistent with the debt sustainability targets.

In Paris trading, the CAC-40 Index gained 39.62 or 1.2% to 3,239.58 and in Frankfurt the DAX Index edged higher 36.46 or 0.6% to 6.216.40.

For the week, the CAC-40 Index soared 3.3% and the DAX Index gained 2.6%.

Inpex, Total Confirm Ichthys LNG Project

Inpex Corp. and Total SA finalized decisions to invest $34 billion Australia''s Ichthys LNG Project.

The Ichthys gas-export development will tap a remote deepwater field off Australia''s northern coast containing an estimated 12.8 trillion cubic feet of natural gas, Inpex stated.

Air France Examines Transformational Program

Air France-KLM said its three-year restructuring plan will help it to lower its debt and overhaul its short and medium term haul operations and accelerate its cost cutting.

The company plans to increase capacity by only a little over 5% on a cumulative basis and reduce net debt by €2 billion to €4.5 billion by end December 2014. The company plans to generate €2 billion in net cash flow over 2012-2014, through immediate actions and a transformation plan.

New cost cutting measures amounting to €1 billion will be implemented immediately. They include a freeze on general pay rises in 2012 and 2013 at Air France and a policy of wage moderation at KLM. The hiring freeze introduced in September 2011 will also be pursued.

Gainers & Losers

BMW Group dipped 0.2% to €59.31 after the German car manufacturer said it will invest an additional $900 million by 2014 and add 300 new jobs at its South Carolina-based Spartanburg plant in the U.S.

Daimler AG rose 1.1% to €38.60 after the German car corporation announced the creation of 1,200 new jobs to ramp up production at its truck production in North America.

Fraport AG increased 1.8% to €42.29 after the owner and operator of Germany''s Frankfurt Airport served a total of 4.25 million passengers in December 2011, up 12.2% from last year.

SMA Solar Technology AG plunged 5.9% to €50.60 after the German solar inverter maker said sales in the fiscal year 2011 amounted to around €1.7 billion and export sales increased 55%.

ING Groep NV dropped 1.6% to €6.10 after the Dutch insurer stated its priorities for ING Bank for 2012 and 2013 include Dutch State repayment, completion of the EC restructuring requirements and fulfilment of Basel III requirements while achieving a minimum core Tier 1 ratio of 10% at the end of this period.

Novartis AG slid 1.2% to Sfr52.70 after the pharmaceutical company said it plans to restructure its U.S. business, aiming to strengthen its competitive position in light of its hypertension drug Diovan''s patent expiration. The restructuring will result in reduction of 1,960 jobs.