European Markets on Alert as Spanish Yield Cross 7%, Nokia Plunges

Devan Biswas
14 Jun, 2012
New York City

European markets traded lower as a growing vortex of worries and uncertainties dragged market sentiment lower. Yields on Spanish 10-year bonds crossed the unsustainable 7% and Italian bond yields rose at the latest auction. Spanish home prices fell at the fastest pace in three years.

[R]4:30 PM Frankfurt – European markets traded lower as a growing vortex of worries and uncertainties dragged market sentiment lower. Yields on Spanish 10-year bonds crossed the unsustainable 7% and Italian bond yields rose at the latest auction. Spanish home prices fell at the fastest pace in three years.[/R]

Pressure on European policymakers and bankers mounted after bond yields of Spain and Italy rose for the fourth day in a row.

In Frankfurt trading, DA index declined 48.4 or 0.8% to 6,104.09, in Paris CAC-40 index fell 12.85 or 0.4% to 3,017.19 and in London FTSE 100 index eased 0.7% or 39 to 5,444.81.

Market indexes in Milan, Athens edged fractionally lower and in Oslo and Zurich fell more than 0.7%. The benchmark index in Madrid rose 0.4%.

Italy sold €4.5 billion of bonds today that included 3-year bonds that yielded 5.3% compared to 3.91% in the previous auction on May and investor interest in the auction was lukewarm.

Spanish bond yields rose again today and crossed 7% for the first time on the growing consensus that the nation may be forced to seek a larger bailout from international lenders.

The yield on 10-year Spanish bonds subsided later in the afternoon to 6.87% as bank failure worries rise and Moody’s trimmed the debt rating of Spanish government debt by three notches and just one level above the junk status.

Moody’s lowered bond rating to Baa3 from A3 on Wednesday and cited that the latest deal with the euro zone to save banks will increase the nation’s debt and Spain is increasingly reliant on its domestic banks for its bond sale.

There was conflicting news about the fate of the three Spanish banks that were recently bailed out by the government. The government was forced to intervene after it failed to find buyers for Banco de Valencia, NovaCaixaGalica and Catalunya Caixa.

Spain’s economy minister Luis de Guindos repeated government pledge to not liquidate any financial institution. However, Joaquin Almunia, Spanish representative in the European Commission mentioned to Reuters that at least one of the three banks may have to be liquidated.

In addition, the latest news on the Spanish housing markets added to the gloom. Home prices dropped 12.6% from a year ago in the first quarter according to the government statistics agency INE. The decline was the worst since the fall of 7.7% in the second quarter in 2009.

Stock Movers

Credit Suisse dropped more than 7.5% after the Swiss National Bank said the bank need to increase its capital to prepare for risks stemming from the widening debt contagion in the euro zone.

UBS AG also fell after the central bank SNB recommended the bank to increase its capital after the annual review.

Nokia dropped 9.3% to €2.04 after the mobile phone maker said it plans to cut as many as 10,000 positions. The struggling phone makers stock dropped to the lowest since 1996.

The mobile handset maker said that closures of research and development centers in Germany and Canada and a handset factory in Finland would save €1.6 billion by the end of 2013.

Nokia said of the 10,000 planned job cuts, 3,700 would be in Finland and Nokia’s venture with Siemens could be one of the businesses that may be reviewed that may lead to restructuring, sales or closure. The 50-50 network equipment venture with Siemens has lost a total of 986 million in two years to 2011.

BSkyB dropped 7% to 646.80 pence after the pay-TV operator was forced to pay at least 760 million pounds to show Premier League games.

Petropavlovsk Plc soared 10% to 453 pence after the Russia based gold refiner lifted its 2012 production target by 20,000 ounces.