Portugal to Inject

Devan Biswas
04 Jun, 2012
New York City

European markets were in a holding pattern as leaders voice their plans ahead of the regional summit later in the year. Euro are wholesale inflation was steady and consumer price inflation declined but stayed above the target range established by the central bank.

[R]3:00 PM Frankfurt – European markets were in a holding pattern as leaders voice their plans ahead of the regional summit later in the year. Euro are wholesale inflation was steady and consumer price inflation declined but stayed above the target range established by the central bank.[/R]

European markets were in a holding pattern after the latest wholesale inflation was steady, commodities prices eased and investors look ahead to Spanish bond auction this week and the meeting of central banks in Europe and UK.

Markets were on the edge on the first of day of trading this week after a steep sell off last week and a sharp decline in the U.S. markets on Friday.

The euro declined 0.2% to $1.243 but traded above the low for the year reached on Friday at $1.228, the lowest since July 2010.

European leaders are voicing their demands for a greater fiscal integration in the currency union ahead of the meeting of leaders at the end of the month and before the G20 meeting on June 18 and June 19.

Germany Chancellor Angela Merkel has been working with other leaders to establish a central authority to manage euro area financing and also have a central organization that overlooks social security and tax policies.

Bond yields in Europe were on the decline and Spanish 10-year bond yield eased to 6.5%. German bund yields rose 3 basis points to 1.21%, higher than the record low on Friday of 1.127%. Italian bond yields dropped to 5.79%.

Spanish Prime Minister Mariano Rajoy commented on Weekend that he will prefer a stronger “banking union” and said Europe should establish a centralized authority to recapitalize banks and lend the capital directly to banks and not to individual state governments.

French Finance Minister Pierre Moscovici said that any lending to the bank in the euro zone should be through the European Stability Mechanism and not through government.

Separately, Portuguese government said it will inject up to 6.56 billion euros into three of its largest lenders to strengthen banking sector as loan losses rise rapidly in the last three months.

The Portuguese finance ministry said it will inject 3.5 billion euros in Banco Comercial Portuges SA and up to 1.5 billion euros in Banco BPI SA and up to 1.65 billion into state controlled Caixa Geral de Depositos.

The government will receive in exchange of the bailout contingent convertible bonds and the funds will be provided through the Bank Solvency Support Facility established as part of 78 billion bailout package from the European Union.

Euro zone producer price inflation or wholesale inflation slowed for the seventh month in April on lower energy costs and falling demand.

The inflation in the month slowed to 2.6% from a year ago after rising at revised 3.5% from a year ago in March. The inflation measure in Germany slowed to 2.4% from 3.4% rate in March and the measure declined in France, Spain and Italy.

The consumer price inflation increase slowed to 2.4% in the euro zone, the slowest since February a year ago. The inflation measure has declined but it is still above the range established by the central bank.