EC Estimates Spanish Deficit Above 6%; Credit Agricole, Telefonica Net Plunge

Arthi Gupta
11 May, 2012
New York City

The European indexes edged lower after the European Commission said Spain

[R]1:00 PM Frankfurt – The European indexes edged lower after the European Commission said Spain’s budget deficit will stay above 6% this and next year. The euro area economy is forecast to shrink 0.3% this year. Credit Agricole and Telefonica quarterly net plunged.[/R]

The European indexes traded after the European Commission projected high deficit for Spain in the current and next year and China reported flurry of economic data that suggested a slowing economy.

The European Commission said Spain is likely to have a budget deficit of 6.4% in the current year and 6.3% next year, higher than the 3% limit set by the European Law. Spain had forecasted deficit of 5.3% this year.

Spain is also expected to announce a range of banking measures that includes higher reserves and may accelerate consolidation among weak banks. Spain is expected to ask banks set aside €30 billion more against bad debts in addition to €50 billion mandates in February.

In Greece, Evangelos Venizelos, the leader of Pasok party inched toward forming a new coalition government. Venizelos is the third person in less than a week who has been asked to form a new government by the Greek president.

Democratic Left party leader Fotis Kouvelis with 19 seats issued positive statements to join the government but with preconditions. Venizelos also met with the conservative New Democracy party leader Antonis Samaras, who too reiterated that an election again at this stage would be detrimental for Greece.

Venizelos is scheduled to meet with the radical left Syriza party leader Alexis Tsipras today.

In early cautious trading, traders were jittery with the unexpected slowdown in China’s economic growth. Also, the surprise announcement from JPMorgan Chase that is suffered $2 billion trading loss in the last six weeks.

China''s industrial sector grew 9.3% from a year earlier in April, the latest data from the National Bureau of Statistics showed.

Inflation in China eased to 3.4% in April from 3.6% in March, according to a report released by the National Bureau of Statistics today.

China''s retail sales increased 14.1% from a year ago in April, slower than the 15.2% rise in March, the latest report from the National Bureau of Statistics showed.

In Paris trading, the CAC-40 Index declined 25.08 or 0.8% to 3,104.70 and in Frankfurt the DAX Index edged lower 24.96 or 0.4% to 6,491.46.

For the week, the CAC-40 Index slumped 1.8% and the DAX Index fell 1%.

The yield on Spain’s benchmark 10-year bonds rose to 6.0%, and the Italian bond yields fell to 5.65%.

The euro-zone economy is forecast to shrink 0.3% this year, in line with the February interim forecast, the European Commission said today and forecasted a gradual recovery in the second half of the year.

Inflation in the euro area is estimated to ease to 2.4% this year from 2.7% in 2011.

The commission released estimates of growth, inflation, employment and government budget deficit for the European Union and the euro zone and each state individually.

German Inflation Rises

Germany''s harmonized index of consumer prices increased 2.2% on an annual basis in April compared to the 2.3% growth in March, final data released by the Federal Statistics Office showed today.

Spanish Inflation Climbs

Spain''s inflation, as measured by the harmonized index of consumer prices, rose to 2% annually in April, from 1.8% in March, according to final data released by the statistics office INE today.

Gainers & Losers

ASSA ABLOY AB rose 0.1% to SEK 191.50 after the Swedish lock manufacturer acquired Helton, a Canadian company that manufactures hardware for sectional doors for residential and industrial customers.

AXA SA fell 2.6% to €9.66 after the insurer reported first quarter total revenues improved 1.8% to €28.06 billion from €27.57 billion in the earlier year quarter.

Credit Agricole SA fell 1.9% to €3.43 after the French banking group said first quarter revenues grew 2.3% to €5.43 billion from €5.3 billion a year-ago quarter. Net income in the quarter plummeted 74.8% to €252 million from €1 billion last year.

The Core Tier 1 ratio improved 80 basis points sequentially to 9.4%, due primarily to the significant decline in risk-weighted assets.

EDF SA slumped 2.6% to €15.96 after the French utility group reported first quarter sales totaled €20.8 billion, a 6.5% organic growth compared to the first quarter of 2011.

Telefonica SA dropped 2.4% to €11.05 after the Spanish telecom company reported first quarter revenues increased 0.5% to €15.51 billion from €15.44 billion in the previous year. Net income in the quarter plunged 54% to €748 million from €1.62 billion in the previous year.