Jittery European Markets Trade Lower, LSE Soars 5%

Arthi Gupta
18 May, 2012
New York City

The European indexes extended losses for the fourth week and politicians across the region express confidence in the euro even after Greek exit. ArcelorMittal agreed to sell its steel distribution business to Nucor for $605 million. DSM agreed to acquire Ocean Nutrition Canada for C$540 million.

[R]1:00 PM Frankfurt – The European indexes extended losses for the fourth week and politicians across the region express confidence in the euro even after Greek exit. ArcelorMittal agreed to sell its steel distribution business to Nucor for $605 million. DSM agreed to acquire Ocean Nutrition Canada for C$540 million.[/R]

The European indexes declined for the fourth week in a row as Greece prepares for another election and economic sentiment in the region weakens. German output price inflation eased to 22-month low in April.

Investors are also looking ahead at the meeting of the Group of Eight leading nations in Maryland that begins to today.

Across the region, politicians and regulators are increasingly comfortable talking publicly about the Greece’s exit from the euro zone ahead of the election only to put pressure on leaders to stay in the currency union.

According to a local report in Spanish financial newspaper Cinco Dias, local banks are asking regulators to reinstate a temporary ban on short selling of domestic banking stocks that was lifted in February.

Separately, ratings agency cut debt ratings of 16 Spanish banks and the long term credit rating of Greece was also lowered.

Fitch downgraded Greece''s long term credit rating to ‘CCC’ from ‘B-‘, citing heightened risk that the nation may not be able to sustain its membership of Economic and Monetary Union.

Fitch has also downgraded the Short-term foreign currency rating to ''C'' from ''B''.

Separately, Moody''s Investors Service downgraded by one to three notches the long-term debt and deposit ratings for 16 Spanish banks and Santander UK PLC, a UK-domiciled subsidiary of Banco Santander (Spain) SA, citing economic weakness and the government''s reduced ability to support troubled lenders.

Spain''s two largest banks, Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, were among the banks downgraded.

Moody''s said the outlooks for ten of the downgraded banks are now negative, while the ratings for the remaining seven banks remain on review for further downgrade.

Spanish banks'' bad loans increased 8.37% of their outstanding credit portfolios in March, following a revised 8.3% in February according to the Bank of Spain said today, the highest bad debt ratio since 1994.

In Paris trading, the CAC-40 Index declined 32.17 or 1.1% to 2,979.02 and in Frankfurt the DAX Index edged lower 46.94 or 0.7% to 6,261.66.

For the week, the CAC-40 Index plunged 4.8% and the DAX Index plummeted 4.8%.

The yield on Spain’s benchmark 10-year bonds grew six basis points to 6.39%, and the yields on the 10-year Italian bonds rose seven basis points to 6.05%.

German PPI Eases

Germany''s output price inflation eased to 2.4% in April from 3.3% in March, data released by the Federal Statistics Office showed today. The growth rate for April was the smallest since June 2010, when output prices increased 1.7%.

Energy prices climbed 4.5% annually in April, while consumer goods prices rose 3.4%.

UK Home Price Sentiment Climbs

Households in the UK continued to remain downbeat about their property prices in May, data from a survey by Knight Frank and Markit Economics showed.

The home price sentiment index rose to 46.3 in May from 45.4 in April.

Spanish Leading Index Falls

A leading indicator of the Spanish economy declined from the previous month in March, data from a survey by the Conference Board showed.

The leading economic index decreased 0.9% from the previous month to 104.3 in March.

ArcelorMittal Sells Businesses to Nucor

ArcelorMittal S.A. announced the sale of its steel foundation distribution business operating in North America to Nucor Corporation for about $605 million on a debt free and cash free basis. The transaction is expected to be completed by the end of the second quarter of 2012 as ArcelorMittal’s sells assets to cut its debt.

DSM to Acquire Ocean Nutrition Canada

Royal DSM, the global life sciences company entered into an agreement with Clearwater Fine Foods and funds managed by Richardson Capital to acquire Ocean Nutrition Canada for a total enterprise value of C$540 million.

The company said the acquisition would allow DSM to strengthen and complement its newly established, global Nutritional Lipids growth platform.

Gainers & Losers

Gentium S.p.A. slumped 3.1% to €9.40 after the biopharmaceutical company reported a first-quarter net loss of €0.9 million or €0.06 per share compared to net income of €1.7 million or €0.109 per share in the comparable quarter last year.

GlaxoSmithKline Plc dipped 0.2% to 1,406 pence after the healthcare group said its tender offer to acquire all of the outstanding shares of Human Genome Sciences represents ""full and fair value.""

London Stock Exchange Group Plc soared 5.3% to 1,016 pence after the diversified stock exchange group in Europe said for the year ended March revenue grew 10% from a year ago to £679.8 million and pre-tax profit surged 169% to £639.7 million.

Mitchells & Butlers Plc fell 1.3% to 242.90 pence after the pub and restaurant operator said first-half revenues climbed 2.4% to £969 million from £946 million in the preceding year, with food sales increasing 9.4% and drink sales rose 4.8%. Profit before tax for the period declined 2.3% to £42 million.

WPP Plc edged lower 2.2% to 770 pence after the advertising agency company''s wholly-owned operating network Possible Worldwide, the global interactive marketing agency, part of WPP Digital, has agreed to acquire a majority stake in Grape LLC in Russia.