European Markets Rebound as Euro Zone Crisis Boils

Arthi Gupta
24 May, 2012
New York City

European markets traded higher as leaders failed to agree on a plan to revive growth in the region. German business confidence fell more than estimated in May manufacturing and services sector shrank. The UK economy contracted more than expected in the first quarter.

[R]3:30 PM Frankfurt – European markets traded higher as leaders failed to agree on a plan to revive growth in the region. German business confidence fell more than estimated in May manufacturing and services sector shrank. The UK economy contracted more than expected in the first quarter.[/R]

The European indexes rebounded a day after plunging more than 2% as leaders failed to resolve brewing political crisis linked to Greece and two economic reports signaled slowdown in the region and in Germany.

France proposed the floating of Eurobonds to finance growth measures in struggling Greece and other peripheral nations. However, Germany prefers these nations to put in place austerity measures, shrink government and improve competitiveness that will drive future economic growth.

Greece, Ireland and Portugal were able to increase real wages in the last fifteen years only because of a sustained investment from Germany and other nations but failed to improve governance or competitiveness.

At the meeting held in Brussels yesterday, leaders insisted that Greece accept the bailout terms and stick to the previously agreed austerity measures and urged nation to stay in the currency union.

Asian markets closed on a mixed note dampened by weaker-than-estimated Chinese manufacturing data and Australian dollar closed at a six month low and the rupee in India sank to another record low against the dollar to 55.75.

China's manufacturing sector shrank for a seventh straight month in May. The headline HSBC purchasing managers' index fell to 48.7 in May from 49.3 in April.

Bayerische Motoren Werke AG, the German automaker estimated sales in China to grow at a double-digit rate in the current year and reach a record high.

In Paris trading, the CAC-40 Index gained 16.84 or 0.6% to 3,019.30 and in Frankfurt the DAX Index edged higher 18.21 or 0.3% to 6,303.85.

The euro drifted lower to $1.256 and the pound traded at $.1561.

The yield on Spain’s benchmark 10-year bonds rose five basis points to 6.25%, and the yields on the 10-year Italian bonds climbed four basis points to 5.71%.

Euro Area PMI Falls

Euro-zone economic activity fell to a near three-year low in May, according to flash data from Markit Economics released today.

The composite output index dropped more than expected to 45.9 in May from 46.7 in April.

The Purchasing Managers' Index for manufacturing fell to 45 in May from 45.9 in April. The services PMI dipped marginally to 46.5 in May from 46.9 a month ago.

In a separate report, the seasonally adjusted purchasing managers' index for the German manufacturing sector dropped to 45 in May from 46.2 in April. The PMI for the service sector remained unchanged at 52.2 in May.

French manufacturing PMI fell to a three-year low in May. The seasonally adjusted purchasing managers' index for the manufacturing sector dropped to a 36-month low of 44.4 in May from 46.9 in April. The purchasing managers' index for the service sector remained unchanged at 45.2 in May.

German Economy Rebounds

Germany’s gross domestic product rose a seasonally adjusted 0.5% in the first quarter ending in March compared to a 0.2% fall in the fourth quarter, final data from the Federal Statistics Office confirmed today.

German Business Confidence Drops

Germany's business confidence declined more than estimated in May, according to the latest survey by Ifo Institute.

The Ifo business climate index fell to 106.9 in May from 109.9 in April. This was the first fall since October last year.

The index measuring assessment of the current business conditions fell to 113.3 in May from 117.5 in April.

UK GDP Shrinks

The UK gross domestic product contracted 0.3% during the first quarter, following a similar 0.3% GDP decline in the fourth quarter of 2011, the Office for National Statistics said today.

Separately, the number of mortgage approvals granted for home purchase in the United Kingdom increased in April, data released by the British Bankers' Association showed.

The mortgage approvals for home purchases rose to 32,438 in April from an upwardly revised 31.931 in March.

Gainers & Losers

Raiffeisen Bank International AG rose 1.3% to €23.50 after the corporate and investment bank said first quarter profit before tax soared 69.1% to €685 million from last year. Net interest income for the quarter fell 1% to €875 million from €884 million in the prior-year quarter.

Rio Tinto plc climbed 0.3% to 2,798 pence after the miner estimates its global annual iron ore production to increase up to 450 million tons by 2016.

SABMiller Plc gained 0.3% to 2,404.50 pence after the brewer said revenues for the year ended March increased 12% to $21.76 billion from $19.41 billion last year. Annual profit surged 75% to $4.22 billion from $2.41 billion reported a year ago.

Seagate Technology PLC fell 2.2% to $25.8 after the hard disk drive maker said it plans to acquire a 64.5% stake in France-based consumer storage products company LaCie SA for $186 million.