Greece Heading for Elections, Indexes Slump 2%

Arthi Gupta
14 May, 2012
New York City

The European indexes slumped as Greece leaders fail to form a new government and new elections are likely in four weeks. Italy raised

[R]1:00 PM Frankfurt – The European indexes slumped as Greece leaders fail to form a new government and new elections are likely in four weeks. Italy raised €5.25 billion and Spain sold €2.9 billion of debt in auctions today. Euro area output fell unexpectedly in March.[/R]

The European indexes slumped more than 2% after political parties in Greece failed in their latest efforts to form a coalition government and the party demanding the rejection of bailout terms is likely to increase its representation in the next election.

In other political news in the region, German Chancellor Angela Merkel''s conservative Christian Democratic Union party was routed in the North Rhine-Westphalia state elections on Sunday.

Greece is heading towards fresh elections after the Syriza party leader Alexis Tsipras rejected an invitation for talks from President Karolos Papoulias to form a coalition government.

On Sunday, the three largest Greek parties, New Democracy, Syriza and Pasok failed to form a coalition government.

Alexis Tsipras is vehemently opposed to the austerity measures agreed by the previous government and wants the deals reached with the troika, namely the European Union, European Central Bank and the International Monetary Fund to be “nullified” before he participates in any further discussions regards the formation of a new government.

However, leaders of the right New Democracy, the socialist Pasok as well as the Democratic Left will meet the President Karolos Papoulias to avoid fresh elections.

Finance ministers of the euro area are set to meet in Brussels later today to discuss the bailout package for Greece and the current developments in Spain.

The People''s Bank of China slashed the reserve requirement ratio by 50 basis points, the third reduction in six months and new rate will be effective on May 18.

In Paris trading, the CAC-40 Index declined 73.07 or 2.3% to 3,056.82 and in Frankfurt the DAX Index edged lower 139.33 or 2.1% to 6,440.60.

The yield on Spain’s benchmark 10-year bonds rose 14 basis points to 6.12% and the yield on the 10-year Italian bonds climbed 10 basis points to 5.76%.

Italian, Spanish Bond Auction

The Italian Treasury raised €5.25 billion at a bond auction today.

Italy sold €3.5 billion of a March 2015 bond at an average yield of 3.91% compared to an average yield of 3.89% at a previous auction held in mid-April. The bid-to-cover rose to 1.5 from 1.4 a month ago.

The Treasury is also offering up to €1.75 billion of three maturities due in 2020, 2022 and 2025.

Separately, the Spanish Treasury raised €2.9 billion in an auction of 12- and 18-month Treasury bills today.

Spain sold €2.2 billion of 12-month T-bills at an average yield of 2.985% compared to an average yield of 2.623% last month. The bid-to-cover ratio was 1.8 compared with 2.9 times in April.

The Treasury also auctioned €711 million of 18-month bills at an average yield of 3.302% compared to an average yield of 3.110% last month. The bid-to-cover ratio was 3.2, lower than the 3.8 in April.

Euro-zone Output Drops

Euro-zone industrial production declined unexpectedly in March, the latest data from Eurostat showed today.

Industrial production fell 0.3% from a month ago in March, following a 0.8% rise in February.

On an annual basis, production dropped 2.2% in March compared to the 1.5% fall in production in February.

German WPI Rises

Germany''s wholesale price inflation rose to 2.4% in April from 2.2% in March, the Federal Statistics Office said today.

On a monthly basis, the price index rose 0.5% in April compared to the 0.9% increase in March.

Gainers & Losers

Aurubis AG rose 1.7% to €40.83 after the German copper producer reported second quarter revenues declined 2% to €3.65 billion from €3.74 billion in the same quarter a year earlier. Net income for the quarter fell 30% to €111 million from €161 million in the previous year. On a per share basis, earnings were €2.48, lower than €3.66 per share in the prior year.

Celesio AG fell 0.4% to €13.15 after the German drug distributor said first quarter revenue grew 2.5% to €5.64 billion. Pre-tax profit for the quarter grew 6.6% to €83.9 million from €78.7 million.

HSBC Holdings Plc declined 1.8% to 544.30 pence after the banking and financial services organizations agreed to sell its businesses in Colombia, Peru, Uruguay and Paraguay for a total consideration of $400 million in cash.

Infineon Technologies AG slid 2.9% to €6.70 after the German semiconductor maker announced that its Chief Executive Officer Peter Bauer would step down from the position at the end of the current fiscal year because of osteoporosis.

Lonmin Plc slumped 3.6% to 868.50 pence after the Platinum producer reported first-half pre-tax profit plunged 88% to $18 million compared to a year-ago profit of $159 million.

Platinum sales fell 10% to 608,579 ounces from a year earlier.