Greek and Spanish Worries Intensify in Euro Zone

Arthi Gupta
24 Jul, 2012
New York City

The European indexes traded sideways in thin trading and debt pressures intensified in the region. Spain raised

[R]1:30 PM Frankfurt – The European indexes traded sideways in thin trading and debt pressures intensified in the region. Spain raised €3.05 billion at borrowing costs. Moody’s offered negative views on Germany, the Netherlands and Luxembourg.[/R]

European markets traded sideways as debt pressures intensified in the region and bond yields rose near record levels for the second day this week.

Spain managed to raise €3.05 billion from the sale of its 3- and 6-month treasury bills at higher borrowing costs but only with the help of domestic borrowers and with very little participation from foreign investors.

In addition, late Monday Moody’s lowered its views on the most advanced nations in the region.

Moody''s Investors Service downgraded its rating outlook on Germany, the Netherlands and Luxembourg to “negative” from “stable.” The debt rating agency cited rising cost of additional bailouts and the possible exit of Greece from the currency union.

The international lenders meet today to assess Greece’s progress in meeting its deficit target by most private estimates the nation is not likely to meet the financial targets set by troika.

Greece is not in a position to meet its schedule to repay €3.1 billion in interest rate to European Central Bank on August 20 unless new loans are approved. International lenders are not ready to provide additional assistance unless Greece cuts its deficit and lowers government operating cost as the nation faces recession for the third year and the economy is expected to contract 7%.

In earnings news, Software AG quarterly total license sales rose 32% and SAP AG said profit was boosted by strong software revenue growth in all regions. Norsk Hydro and STMicroelectronics swung to loss but TomTom turned to profit in the second quarter. Telenor quarterly net declined.

In Paris trading, the CAC-40 Index edged higher 1.34 or 0.04% to 3,102.78 and in Frankfurt the DAX Index edged lower 3.13 or 0.1% to 6,416.32.

The yields on Spain’s benchmark 10-year bonds rose 23 basis points to 7.50%. Italian 10-year yields climbed 17 basis points to 6.34%.

Spanish Bond Auction

Spain raised €3.05 billion from the sale of its 3- and 6-month treasury bills at higher borrowing costs, meeting its target.

The Spanish Treasury sold €1.63 billion of the 3-month bill at an average yield of 2.434% compared to the average yield of 2.362% in the previous auction on June 26. The bid-to-cover ratio rose to 2.94 from 2.60.

The country also raised €1.42 billion of its 6-month paper at an average yield of 3.691%, up from 3.237% in the previous sale on June 26. The bid-to-cover ratio rose to 3 from 2.82 last month.

Euro zone Confidence Deteriorates

Consumer confidence in the euro-zone deteriorated in July, the latest data from the European Commission showed.

The flash estimate of the consumer confidence indicator slumped to -21.6 in July from -19.8 in June in the euro area.

Separately, the euro-zone private sector economy contracted for the tenth time in the past 11 months, with the rate of decline unchanged on June, Markit Economics said today.

The flash composite Purchasing Managers'' Index remained unchanged at 46.4 in July.

Gainers & Losers

Koninklijke KPN NV fell 1.7% to €7.20 after the Dutch telecom operator said revenues declined 3.7% to €3.15 billion from the prior year. Profit in the quarter fell 24% to €315 million or 23 cents per share compared to €414 million or 28 cents per share last year.

Norsk Hydro ASA rose 1.8% to NOK 25.81 after the aluminum producer said second quarter revenue declined 13% to NOK 21.60 billion from NOK 24.73 billion in the comparable period in 2011. Net loss in the quarter swung to NOK 1.71 billion or 78 cents per share compared with a profit of NOK 1.55 billion or 69 cents in the prior-year quarter.

SAP AG gained 1.8% to €49.94 after the business software maker reported second quarter revenues rose 18% to €3.90 billion. Quarterly profit rose 12% to €661 million from €588 million last year.

The company said second quarter software revenue increased 26% to €1,059 million.

Software AG soared 8.2% to €25.32 after the business infrastructure software developer reported second quarter revenues edged up 1% to €258.6 million from the prior year. Net income for the quarter slipped 3% to €37.5 million or 43 cents per share from €38.7 million or 44 cents per share in the prior year.

STMicroelectronics N.V. slumped 3.6% to €3.77 after the chipmaker reported second quarter net revenue declined 16% to $2.15 billion from $2.57 billion in the year-ago period. Net loss in the quarter swung to $75 million or 8 cents per diluted share compared to net income of $420 million or 46 cents per share in the year-ago quarter.

Telenor ASA climbed 2.2% to NOK 99.70 after the telecommunications provider said second quarter revenues rose 5% to NOK 25.36 billion. Net income in the quarter slumped 54% to NOK 2.07 billion from NOK 4.49 billion last year.

The Swatch Group AG advanced 2.5% to Sfr370.60 after the Swiss watchmaker reported first-half net sales advanced 15.4% annually to Sfr3.68 billion. Net income for the period climbed 25.2% to Sfr720 million or Sfr2.67 per share from Sfr575 million or Sfr2.13 per share last year.

TomTom NV surged 10.7% to €3.29 after the navigation products supplier said second quarter revenue decreased 17% to €262 million from the earlier year quarter. Net profit in the quarter was €9 million or 4 cents per share compared to a loss of €489 million or €2.20 per share a year ago.

Volvo AB dipped 0.1% to SEK 78.75 after the commercial transport solutions provider said second quarter net sales rose 6% to SEK 83.9 billion, record second quarter sales. Operating income for the period fell 4% to SEK 7.34 billion from SEK 7.65 billion last year.