European Indexes Higher; Economic Outlook Uncertain

Arthi Gupta
23 Jan, 2012
New York City

European markets edged higher ahead of a meeting of European Union finance ministers in Brussels today. Germany sold

[R]1:50 PM Frankfurt – European markets edged higher ahead of a meeting of European Union finance ministers in Brussels today. Germany sold €2.54 billion of new 12-month Bubills at lower yield. The Bank of Spain estimated that the economy will contract 1.5% this year.[/R]

European markets traded higher ahead of a meeting of European Union finance ministers in Brussels today and between Athens and its private-sector lenders.

Investors were also cautious after Spanish economy contracted and the Bundesbank offered weak outlook for the German economy.

Greece is looking to cut its debt load by €100 billion and offering a new security to bond holders that pay less than 4% but private lenders, mostly the hedge funds, are demanding higher interest rates and lower cut in the principal payment.

Greece needs to wrap up its discussion in the next two weeks to avail the next tranche of its €130 billion bailout from European lenders necessary to be able to repay €14.5 billion in maturing bonds in March to avoid a disorderly debt default that may spill over to Portugal and other nations.

European Central Bank President Mario Draghi and Italian Prime Minister Mario Monti want euro-zone to enlarge the capacity of the region''s permanent rescue fund European Stability Mechanism to deal with the debt crisis, German magazine Spiegel reported on Saturday.

Monti is in favor of doubling the size of the ESM to €1 trillion to boost investor confidence in the monetary union.

In Paris trading, the CAC-40 Index gained 22.69 or 0.7% to 3,344.03 and in Frankfurt the DAX Index edged higher 41.32 or 0.7% to 6,444.57.

Italian 10-year government bond yields fell ten basis points to 6.17%.

The Spanish economy shrank 0.3% on a quarterly basis in the fourth quarter, the latest estimates from the Bank of Spain stated today.

The Bank of Spain also estimates that the economy will contract 1.5% this year, and return to 0.2% growth in 2013.

Germany sold €2.54 billion of new 12-month Bubills at an average yield of 0.07%, down from 0.346% at the previous auction held on October 31. The bid-to-cover ratio was 2.2 compared with 4.3 in the previous auction.

The maximum target set for the auction was €3 billion.

French Sentiment Weakens

France''s industrial confidence index in the manufacturing sector dropped to 91 in January from 94 in December, data from a survey by statistics office Insee showed today. This was the lowest reading in the last 21 months.

Gainers & Losers

Barry Callebaut AG rose 1.8% to Sfr897 after the manufacturer of high-quality cocoa and chocolate products was selected by Unilever N.V. as its supplier.

FLSmidth & Co. A/S fell 0.5% to DKK 402.80 after the Danish engineering group entered into an agreement with Australia-listed Ludowici Limited to acquire all shares of Ludowici for A$7.20 per share or A$267 million on a cash and debt free basis.

ThyssenKrupp AG climbed 2.2% to €21.16 after the diversified industrial group confirmed that it is in talks with Finland-based Outokumpu Oyj regarding the merger of its stainless steel unit Inoxum.

Volkswagen AG climbed 0.6% to €135.35 after the German carmaker is considering speeding up the acquisition of Porsche Automobil Holding SE''s sportscar division ahead of the scheduled merger date.

Wincor Nixdorf AG soared 5% to €36.74 after the provider of IT solutions and services to retailers and retail banking reported first quarter net sales fell 4.1% to €608 million from €634 million in the year earlier quarter. Operating earnings decreased 22% to €40 million, from €51 million last year.