Spanish Worries Sink European Markets 3%

Arthi Gupta
23 Jul, 2012
New York City

Market indexes in Germany and France plunged more than 3% as Spanish yield soared to a new record. The indexes in Madrid plunged 3.8% and in Italy dropped 5%. Spain lowered economic outlook for next year. China-based Citic agreed to buy CLSA from Credit Agricole for $1.25 billion.

[R]1:30 PM Frankfurt – Market indexes in Germany and France plunged more than 3% as Spanish yield soared to a new record. The indexes in Madrid plunged 3.8% and in Italy dropped 5%. Spain lowered economic outlook for next year. China-based Citic agreed to buy CLSA from Credit Agricole for $1.25 billion.[/R]

European indexes accelerated the decline for the third day in a row as Spanish yield soared to a new record and the euro dropped again.

The Spanish bond yield soared to 7.5% in early trading as more regional governments in Spain prepare to tap in the recently set up bailout fund. Regional governments are likely to tap €18 billion fund to plug the hole of €35 billion in regional government’s finances.

Spanish Minister for the Treasury and the Public Administration Services, Cristóbal Montoro confirmed that in 2013 ""the recession will continue, but it will be more moderate, with a less severe drop in activity than that seen in 2012.""

Cristóbal Montoro also said the maximum deficit target in 2013 is set at 3.8% for central government and ceiling for expenditure is fixed at €126.79 billion.

The Spanish economy contracted 0.4% on a quarterly basis in the second quarter compared to the 0.3% contraction in the first quarter, Bank of Spain said in its quarterly estimates released today.

A report in El Pais suggested that six Spanish regions including Catalonia, Castilla-La-Mancha, Murcia, the Canary Islands, the Balearic Islands may ask for aid from the central government.

Greece too is in the doldrums after a German newspaper reported that the country may not be able to fulfil its 120% deficit target and three international lenders may suspend the disbursement of loans as early as September.

In addition, European Central Bank said in a statement on Friday that the buy-back scheme for marketable debt instruments issued or fully guaranteed by Greece will become ineligible for use as collateral due to the expiration on July 25. Essentially, the ECB said it will not issue more loans to Greece until the economic update report from troika.

In Paris trading, the CAC-40 Index declined 54.80 or 1.7% to 3,139.09 and in Frankfurt the DAX Index edged lower 95.16 or 1.5% to 6,535.71.

The yields on Spain’s benchmark 10-year bonds soared 25 basis points to 7.46%. Italian 10-year yields rose 24 basis points to 6.38%.

CITIC Buys CLSA

China-based CITIC Securities Co., Ltd. agreed to purchase a 19.9% interest in Credit Agricole’s CLSA unit for $310.3 million. The Chinese company will buy the remaining 80.1% in CLSA for $941.7 million, subject to the relevant regulatory and shareholders'' approvals.

Gainers & Losers

Julius Baer Gruppe AG fell 0.8% to Sfr34.30 after the Swiss wealth manager reported first-half net profit improved 19% to Sfr175.5 million from Sfr147.3 a year earlier. Assets under management grew 5% to Sfr179 billion since the end of 2011.

Basler AG rose 1.3% to €11.45 after the digital cameras manufacturer said first-half sales fell 10% to €25.2 million from the year-ago period. Earnings before taxes fell 33.3% to €2.2 million from €3.3 million last year.

Groupe Eurotunnel SA plunged 7.7% to €5.80 after the railway operator reported first-half revenues climbed 14% to €473 million.

Koninklijke Philips Electronics NV soared 6.5% to €17.26 after the consumer electronics producer said second quarter sales improved 13% annually to €5.89 billion from €5.22 billion. Net income in the quarter swung to €167 million or 18 cents per share compared to net loss of €1.35 billion or €1.39 per share last year.

Royal Wessanen nv dropped 1.6% to €2.34 after the organic food producer said it has acquired the minority stake in Rabo Capital''s Favory Convenience Food Group. The partly deferred consideration for 35.9% minority stake amounts to €5 million.

Wereldhave NV plummeted 12% to €46.35 after the real estate company said indirect result for the second quarter will be negative on a lower property revaluation of the American portfolio by €128 million and a lower revaluation of the British shopping centers by €37 million.