Euro Inflation Falls to 27-month Low, ECB Action Hopes Rise

Arthi Gupta
03 Jul, 2012
New York City

The European indexes rose on speculation that central bank may step up actions as the euro area producer price inflation declined to a 27-month low and UK mortgage approvals fell in May. Spanish unemployment dropped in June. BlackRock agreed to acquire Swiss Re Private Equity Partners.

[R]3:00 PM Frankfurt – The European indexes rose on speculation that central bank may step up actions as the euro area producer price inflation declined to a 27-month low and UK mortgage approvals fell in May. Spanish unemployment dropped in June. BlackRock agreed to acquire Swiss Re Private Equity Partners.[/R]

European markets gained in early trading on optimism that central banks may eke out more stimulus measures for economic growth.

Weaker-than-estimated economic data from U.S., Europe and China yesterday fueled speculation that additional measures may be needed to shore up confidence and revive manufacturing.

Italy''s cash budget deficit fell by €15 billion in the first-half, the Ministry of Economy and Finance said in a statement today.

In Paris trading, the CAC-40 Index gained 9.24 or 0.3% to 3,249.26 and in Frankfurt the DAX Index edged higher 43.35 or 0.7% to 6,538.35.

The yield on Spain’s benchmark 10-year bonds dropped six basis points to 6.35%. Italian 10-year yields declined three basis points to 5.71%.

Robert E. Diamond Jr, the chief executive of Barclays resigned after politicians stepped up heat and welcomed his resignation. The pressure on Diamond intensified after Labor Party chief demanded an independent investigation in the company.

Ed Miliband, leader of the opposition Labour Party said that Diamond’s decision to resign was “necessary and right” and added “this is about the culture and practices of the entire banking system” which is why “we need an independent, open, judge-led public inquiry.”


Diamond resigned a day before he is scheduled to testify before the Treasury Select committee, responsible for probing London interbank offered rate or Libor setting.

Diamond said in a statement today, “The external pressure placed on Barclays has reached a level that risks damaging the franchise – I cannot let that happen.”

More fallout at Barclays are likely in the next few days. On Monday, Marcus Agius resigned as chairman and recently appointed chief operating officer Jerry del Missier, long time associate of Diamond is expected to leave as well according to sources at the bank.

At least 20 regulatory authorities are investigating the actions of several banks in Europe and U.S. including global banks HSBC, JP Morgan and Wells Fargo and Citigroup.

Euro-zone PPI Drops

Euro-zone producer prices fell 0.5% from a month ago in May following a 0.1% rise in April, the latest data released by Eurostat showed today.

On an annual basis, the price index gained 2.3% in May.

Spanish Unemployment Declines

Unemployment in Spain declined 2.1% from a month ago in June, the labor ministry data showed.

The number of unemployed fell by 98,853 from the month earlier to 4.62 million in June. Unemployment among youth under 25 years fell 7.61% on a monthly basis.

On an annual basis, total registered unemployment increased by 493,468 persons or 11.97% in June.

Spain has the highest jobless rate of 24.6% in the euro area.

UK Mortgage Approvals Fall

UK mortgage approvals fell in May, the Bank of England said today.

The number of mortgages approved for home purchases dropped to 51,098 in May from 51,627 in April.

Lending to individuals rose 0.1% or £1.3 billion in May from the prior month.

Separately, the central bank also reported that M4 money supply declined 0.1% on a monthly basis in May, following a 0.9% rise in April. Annually, money supply dropped 4.1% in May compared to the 4% fall in April.

In another report, construction output in the UK declined at the sharpest pace in two-and-a-half years in June, a survey by Markit Economics showed.

The Markit/CIPS Construction Purchasing Managers'' Index fell to 48.2 in June from 54.4 in May. Civil engineering and housing activity were the worst performing broad areas of the construction sector.

BlackRock to Buy Swiss Re Private Equity Partners

U.S.-based BlackRock, Inc. agreed to acquire Swiss Re Private Equity Partners AG, the European private equity and infrastructure fund-of-funds franchise of Swiss Re.

The transaction is expected to be completed by the end of the third quarter. Terms of the all-cash transaction were not disclosed but are expected to be “neutral-to-modestly accretive to 2012 earnings.”

Gainers & Losers

Barclays Plc, the financial services provider soared 3.9% to 175.05 pence after Bob Diamond resigned as chief executive and a director of the company following the Libor-manipulation scandal.

E.ON AG rose 0.4% to €17.31 after the energy solutions provider said it has reached an agreement with Gazprom in the negotiations of their long-term gas supply contracts.

Furthermore, for the full year 2012 E.ON now expects an EBITDA between €10.4 billion and €11 billion and an underlying net income between €4.1 billion and €4.5 billion.

GlaxoSmithKline plc gained 1.7% to $46.36 after the healthcare group agreed to pay $3 billion to the U.S. Government and various states to close federal investigations of marketing malpractices.

Peugeot SA surged 3.2% to €7.69 after the French car maker is planning to axe as much as 10% of its French workforce this year, according to media reports.

Royal KPN N.V. fell 2.3% to €7.27 after the Dutch telecommunications operator announced the appointment of Eric Hageman as its new chief financial officer.