Spanish Yield Above 7%, European Leadership Division Deepens

Arthi Gupta
28 Jun, 2012
New York City

The European indexes slumped ahead of the EU summit. Italy raised

[R]1:30 PM Frankfurt – The European indexes slumped ahead of the EU summit. Italy raised €5.4 billion in a bond auction. German jobless rate rose and UK home prices fell in June and the UK economy contracted in the first quarter. Veolia agreed to sell its UK regulated water unit for $1.93 billion.[/R]

European markets suffered as regional leaders gather to finalize the banking union and find ways to stimulate economies of peripheral nations that are forced to pay higher interest rates.

Spanish yield jumped briefly above 7% in sovereign bond trading today and Italian yield also rose at the latest auction. Political leaders of two nations are increasingly forced to cut more spending and depend on the actions from the regional leaders and the European Central Bank.

Spain, the current center of the crisis is slowly but steadily drifting to requesting a bailout that may exceed €400 billion committed for the governments of Ireland, Greece and Portugal combined. Italy is also facing the political heat at home as growth falters and austerity begins to bite.

German Chancellor Angela Merkel in a speech to lawmakers said that euro wide bonds is not a long term solution for the debt crisis in the region and member nations should focus on finding ways to deepen fiscal union and transfer more sovereignty to Brussels.

In Paris trading, the CAC-40 Index declined 24.89 or 0.8% to 3,038.23 and in Frankfurt the DAX Index edged lower 86.51 or 1.4% to 6,142.74.

The yield on Spain’s benchmark 10-year bonds was at 7%. Italian 10-year yields rose seven basis points to 6.28%.

Italian Bond Auction

Italy raised €5.423 billion from the sale of its treasury bonds or BTPs due June 2017 and September 2022.

The Italian treasury sold €2.5 billion of its 4.75 percent June 2017 BTP at an average yield of 5.84% compared to an average yield of 5.66% paid in the previous sale on May 30. The bid-to-cover ratio rose to 1.54 from 1.35.

The country also sold 10-year bond with a 5.50 percent coupon at an average yield of 6.19%, up from 6.03% paid on May 30. The bid-to-cover ratio declined to 1.28 from 1.40 in the previous sale.

UK Economy Contracts

The UK economy contracted in the first quarter as previously estimated, final data from the Office for National Statistics showed today.

Gross domestic product fell 0.3% on a quarterly basis, in line with the estimate released on May 24. But the decline for the fourth quarter of 2011 was revised to 0.4% from 0.3%.

German Jobless Rate Rises

Unemployment in Germany increased more than expected in June, the Federal Labor Agency said today.

The number of people out of work rose by 7,000 to 2.88 million in June from a month earlier.

The unemployment rate rose to 6.8% in June from a revised increase to 6.7% rate in May.

In another report, the German economy is expected to grow 0.7% in 2012, slightly faster than forecast in December, according to a twice-yearly report published by Ifo institute today.

Spanish Inflation Eases

Spain''s annual inflation slowed in June, flash estimate released by the statistics office INE showed. The EU harmonized inflation eased to 1.8% in June from 1.9% in May.

UK Home Prices Drop

The UK home prices declined 1.5% annually in June following a 0.7% drop in May, the Nationwide Building Society said today. This was the fourth consecutive decline and the biggest since August 2009.

Price of a typical home was £165,738.

Veolia Sells UK Regulated Water Business

Veolia Environnement agreed to sell its UK subsidiary of water activities to Rift Acquisitions Limited for a total transaction value of £1.24 billion or $1.93 billion.

After the transaction, Veolia’s net debt will be reduced by around £1.17 billion and is the first significant step of the €5 billion asset divestment program before end 2013.

Danone Lifts Stake in Centrale Laitière

Danone SA, the French dairy said it plans to increase its interest in Centrale Laitière, Morocco''s leading dairy product company to 67% by acquiring part of Société Nationale d''Investissement''s shareholding for a total €550 million or $685 million.

Since 2001, Danone has held 29.2% stake in the Moroccan dailry Centrale Laitière and the rest of 63.4% held by SNI which will be reduced to 25% after the deal.

Gainers & Losers

Debenhams Plc fell 1.6% to 81.90 pence after the British department store operator reported a 3.9% rise in gross transaction value and a 3% increase from a year ago in comparable sales for the 16 weeks ended June 23.

Glencore International Plc declined 2.2% to 291.30 pence after the integrated commodities producer and marketer said it has, through a subsidiary, completed the sale of 20% interest in Shanduka Coal to Shanduka Resources.

Shanduka Resources now holds 50.01% of Shanduka Coal and Glencore 49.99%

HSBC Holdings plc gained 1.6% to $44.58 after the banking and financial services organizations is likely to sell its stakes in India''s Axis Bank and YES Bank, raising around 24.5 billion Indian rupee or $0.43 billion, Reuters reported late Wednesday, citing a term sheet it has obtained.

Fiat SpA climbed 0.7% to €3.72 after the Italian automaker is expected to raise its stake in Chrysler Group LLC to 61.9% from 58.5% as early as next week, according to several media reports.

Linde AG fell 1.8% to €116.60 after the German industrial gases producer is leading the bidding for Lincare Holdings Inc., the U.S- based oxygen provider with around $3.4 billion offer, the Financial Times Alphaville blog reported on Wednesday citing sources.

Swiss Reinsurance Co. dipped 0.8% to Sfr58.25 after the insurer said in its latest sigma study that global premiums slid 0.8% in real terms to $4.6 billion in 2011 and non-life insurance premiums grew 1.9% to $1.97 billion, based on 147 insurance markets.