ECB Ready to Buy Bonds but Awaits Political Actions

Arthi Gupta
02 Aug, 2012
New York City

The European indexes turned lower after the ECB showed willingness to purchase bonds but will only act after rescue fund acts first and governments restructure their economies. Spain sold

[R]4:35 PM Frankfurt – The European indexes advanced ahead of the meeting of the central banks. Spain sold €3.13 billion of debt today at higher borrowing costs. Euro-zone producer prices fell in June Spanish unemployment declined and the UK construction sector rose in July.[/R]

The European Central Bank left its key lending rate at 0.75% and President Mario Draghi said that the bank is ready to purchase government bonds only after politicians approved bailout funds to do the same.

Market indexes turned lower after the rate decision and the central bank may not be ready to purchase bonds of Italy and Spain for several weeks.

Spain completed its targeted debt offering at a lower yield and a rating agency Standard & Poor's affirmed Germany's highest 'AAA' credit ratings with a 'stable' outlook.

In economic news, euro zone industrial producer prices fell and Switzerland's retail sales turnover increased in June.

In earnings news, adidas reported second quarter net climbed 18% but Deutsche Post reported a slump in second quarter profit.

In Paris trading, the CAC-40 Index plunged 83.60 or 2.5% to 3,238.07 and in Frankfurt the DAX Index dropped 155.4 or 2.3% to 6,599.01.

The yields on Spain’s benchmark 10-year bonds fell seven basis points to 6.64%%. Italian 10-year yields dropped 12 basis points to 5.95%.

Spanish Bond Auction

Spain sold €3.13 billion of debt today at higher borrowing costs.

The Spanish Treasury sold €1 billion of bonds due January 31, 2022 at an average yield of 6.647% compared to 6.43% at the previous auction on July 5. The bid-to-cover ratio fell to 2.4 compared with 3.2 last time.

Spain also sold €1.1 billion of bonds maturing in July 30, 2014 at an average yield of 4.774% compared to 3.592% at the last auction in March 2011. The bid-to-cover was 3.

The country also sold €1 billion of a bond maturing October 31, 2016 at an average yield of 5.971% compared to an average yield of 5.536% at the last sale on July 5. The bid-to-cover ratio was 2.7 compared to 2.6 last month.

Euro Zone Producer Prices Drop

Euro zone industrial producer prices fell 0.5% on a monthly basis in June, the same rate of decline as last month, Eurostat reported today.

On an annual basis, producer price inflation slowed to 1.8% in June from 2.3% in May.

UK Construction Activity Rises

The UK construction sector rose marginally in July, driven by the commercial output, data from Markit Economics showed today.

The Chartered Institute of Purchasing & Supply/Markit Purchasing Managers' Index rose to 50.9 in July from 48.2 in June.

Spanish Unemployment Declines

Spain's unemployment declined 27,814 to 4.59 million in July from June, data from the Labor Ministry showed today. That compares with a 42,059 fall last year.

The Spanish jobless rate reached a record 24.63% in the second quarter and highest in the euro zone, according to the statistics office data.

Swiss Retail Sales Eases

Switzerland's retail sales turnover increased a calendar-adjusted 3.7% on an annual basis in June compared to the 6.4% growth recorded in May, data released by the Federal Statistics Office showed today.

Sales of food, beverages and tobacco climbed 2.4% annually and sales of non-food items, excluding fuel, gained 3.3% in June.

Gainers & Losers

adidas AG fell 2% to €59.70 after the sportswear maker said second quarter net sales rose 15% to €3.52 billion from the previous year. Net income attributable to shareholders climbed 18% to €165 million or 79 cents per share compared with €140 million or 67 cents in the 2011 period.

aleo solar AG dipped 0.1% to €16.99 after the solar modules manufacturer said first-half revenues fell 28.3% to €166.4 million from the prior year. Loss per share was €1.87 compared to earnings per share of 13 cents a year ago.

BNP Paribas SA gained 1% to €31 after the bank said second quarter revenues decreased 8% to €10.1 billion from the year-ago quarter. Net income attributable to equity holders fell 13.2% to €1.85 billion from €2.13 billion last year.

Deutsche Post AG soared 3.1% to €15.14 after the logistics services provider reported second-quarter revenues rose 7.3% to €13.73 billion from the 2011 second quarter. Net profit fell to €201 million or 17 cents per share from €278 million or 23 cents in the 2011 period.

GDF Suez SA climbed 1.7% to €18.60 after the natural gas and electricity supplier said first-half revenues rose 10.6% to €50.5 billion from the first-half of 2011. Net income, group share slid 15% to €2.33 billion from €2.74 billion a year before.

Deutsche Lufthansa AG advanced 2.7% to €10.57 after the German aviation group reported first-half revenue improved 6% to €14.51 billion from the same period a year earlier. Net loss in the period narrowed to €168 million or 37 cents per share compared to the loss of €206 million or 45 cents per share in the prior year.

Schroders plc increased 2.3% to €1,322 pence after the asset management company said first-half revenue fell to £698.8 million from £771.1 million a year ago. Pre-tax profit slipped to £177.4 million from £215.7 million last year.

Smith & Nephew plc increased 2% to 672.50 pence after the medical devices maker said second quarter revenues rose 2% to $1.03 billion from last year. Net profit for the quarter rose to $292 million or 32.5 cents per share from $153 million or 17.1 cents per share in the year-ago quarter.

Telecom Italia S.p.A. edged higher 2.4% to €0.7 after the Italian telecom company said first-half revenues rose 1.7% to €14.8 billion. Net profit in the quarter swung to €1.25 billion compared with a loss of €2.04 billion last year.

Thomas Cook Group plc slumped 4.5% to 16 pence after the leisure travel operator said third quarter revenue fell 6% to £2.29 billion. Underlying operating loss for the quarter was £26.5 million compared to a profit of £20.1 million in 2011.

Veolia Environnement Ve SA plunged 8.7% to €8.42 after the environmental management services provider said first-half revenue climbed 3.3% to €14.8 billion. Net income attributable to owners of the company was €153.1 million compared to a loss of €67.2 million last year.