Europe Narrowly Avoids Recession, ThyssenKrupp, Salzgitter Warn

Arthi Gupta
15 May, 2012
New York City

The European indexes rebounded after the German economy expanded more than estimated in the first quarter. Rating agency downgraded 26 Italian banks. Greece sold

[R]1:00 PM Frankfurt – The European indexes rebounded after the German economy expanded more than estimated in the first quarter. Rating agency downgraded 26 Italian banks. Greece sold €1.3 billion of three-month T-bills at higher borrowing costs.[/R]

The European indexes rose after the German economy expanded more than estimated in the first quarter. However, the euro area economic growth remained flat.

Also weighed on the market sentiment was the weak outlook from two largest German steelmakers, ThyssenKrupp and Salzgitter. ThyssenKrupp said operating profit will slump in the year and Salzgitter estimated pre-tax profit will be below the last year’s results.

As usual rating agencies lagged market perception and Moody''s downgraded the long-term debt and deposit ratings for 26 Italian banks.

François Hollande was sworn in as the new President of France today and in a short speech focused on the difficult task ahead and noted that the country “cannot have sacrifices on one side and privilege on the other.”

Hollande is scheduled to meet the German Chancellor Angela Merkel later this evening.

Talks between the Greek president Karolos Papoulias and political leaders are not yielding any success in forming a coalition government as none of the three leading parties appear to compromise.

The president has mooted the idea of a “technocrat” government to the party leaders to avoid fresh elections. However, the party leaders’ reaction is somewhat muted leading to speculation that the Greek political parties prefer another election.

During the euro area finance ministers'' meeting in Brussels yesterday, Eurogroup President Jean-Claude Juncker urged the Greek politicians to form a coalition government and adhere to the austerity measures.

He further added, ""I don''t envisage, not even for one second, Greece leaving the euro area. This is nonsense, this is propaganda.""

Rating agency Moody''s Investors Service on Monday downgraded 26 Italian banks’ long-term debt and deposit ratings by one to four notches. The debt and deposit ratings declined by one notch for 10 banks, two notches for eight banks, three notches for six banks, and four notches for two banks.

The rating outlooks for the banks downgraded are negative.

Moody''s said the ratings for Italian banks now are among the lowest within advanced European countries, reflecting these banks’ susceptibility to the adverse domestic and European operating environment.

UniCredit SpA, Intesa Sanpaolo SpA, Banca Monte Dei Paschi, Banco Popolare, and Unione di Banche Italiane are among the banks that were downgraded by the rating agency.

The Italian economy fell into a deeper recession in the first quarter, preliminary data from the statistics office Istat showed today.

Gross domestic product dropped 0.8% in the first quarter, following a 0.7% fall in the fourth quarter.

In Paris trading, the CAC-40 Index gained 22.71 or 0.7% to 3,080.70 and in Frankfurt the DAX Index edged higher 14.05 or 0.2% to 6,466.83.

The yield on Spain’s benchmark 10-year bonds was at 6.28% and on the 10-year Italian bonds was 5.91%.

Greek Bond Auction

Greece sold €1.3 billion of three-month T-bills at an average yield of 4.34% compared to an average yield of 4.20% from a previous auction on April 17. The bid-cover ratio fell to 2.32 from 2.46 in the April auction.

Euro-zone Economy Stable

The euro-zone gross domestic product was flat in the first quarter, after shrinking 0.3% in the fourth quarter, flash data from Eurostat showed today.

On a yearly basis, seasonally adjusted GDP remained stable in the euro area, following a 0.7% expansion a quarter ago.

The EU27 economy remained flat from the previous quarter and increased 0.1% on a yearly basis.

Germany registered growth of 0.5% in the first quarter, the French economy was flat, Italy suffered 0.8% decline in economic activities and Spain’s GDP declined 0.3%.

Growth in the euro zone was zero percent in the first quarter and narrowly avoided recession after shrinking at 0.7% in the previous quarter.

French Economy Stagnates

The French economy stagnated in the first quarter of 2012 after a modest growth in the fourth quarter of 2011, the statistics office Insee said. The fourth quarter growth rate was revised down to 0.1% from the previously estimated 0.2%.

Separately, the French consumer price index increased 2.1% annually in April

On a monthly basis, consumer prices rose 0.1% in April following a 0.8% gain in March.

German GDP Expands

The German gross domestic product rose 0.5% in the first quarter of 2012 compared to the 0.2% fall in the prior quarter, data released by the Federal Statistics Office showed.

Separately, Germany''s economic sentiment fell more than expected in May, a survey by Mannheim-based Centre for European Economic Research showed.

The indicator of economic sentiment fell to 10.8 in May from 23.4 in April.

UK Deficit Flat

The UK trade deficit was at £8.6 billion in March, unchanged compared with February, the Office for National Statistics said.

Exports of goods rose 5.8% to £26.4 billion in March. Imports grew 4.2% to £34.9 billion.

Gainers & Losers

Hennes & Mauritz AB rose 1.7% to SEK 228.30 after the Swedish apparel retailer said that total sales for April including VAT in local currencies declined 1% from the same month in the previous year. Sales in comparable units decreased 10%.

Merck KGaA slumped 3.1% to €76.15 after the drugs and chemicals firm reported first quarter total revenues grew 3.2% to €2.65 billion from €2.56 billion in the first quarter of 2011. Profit attributable to the company''s shareholders plunged 48.7% to €174.2 million or 80 cents per share from €341.1 million or €1.57 per share in the previous year.

Sky Deutschland AG soared 6.8% to €2.07 after the German pay television operator said first quarter revenue rose 18.3% to €318.4 million from €269.3 million in the prior-year quarter. Pre-tax loss in the quarter narrowed 16.8% to €72.8 million compared with the €87.5 million loss last year.

ThyssenKrupp AG plunged 3.7% to €15.19 after the German steelmaker and industrial conglomerate reported second quarter net sales fell 0.7% to €10.61 billion from €10.68 billion in the same quarter last year. Net loss attributable to its stockholders was €587 million or €1.14 per share compared to a profit of €272 million or 58 cents per share last year.

VimpelCom Ltd. plummeted 4% to $9.1 after the Russian telecommunications company said first quarter revenues rose 3% to $5.62 billion from the $5.48 billion recorded the same period the previous year. Net profit in the quarter fell 29% to $318 million compared to net profit of $450 million a year ago.

The total mobile subscriber base increased 12% year-over-year to 209 million at the end of the first quarter.