Tensions Mount in Euro Zone, UK Economy Shrinks 0.5%

Arthi Gupta
24 Aug, 2012
New York City

The European indexes fell ahead of meeting of leaders of Germany and Greece. Spanish producer price inflation rose in July and the UK economy contracted 0.5% and business investment fell. Aer Lingus urged shareholders to reject the offer from Ryanair.

[R]1:45 PM Frankfurt – The European indexes fell ahead of meeting of leaders of Germany and Greece. Spanish producer price inflation rose in July and the UK economy contracted 0.5% and business investment fell. Aer Lingus urged shareholders to reject the offer from Ryanair.[/R]

In European trading, investors were cautious ahead of a crucial meeting between Greek Prime Minister Antonis Samaras and German Chancellor Angela Merkel today. Samaras is scheduled to meet the French President Francois Hollande tomorrow.

However, the two leaders are likely to delay any decision making by a month after the release of Greek economy’s report from troika. The Greek premier is seeking another two years to implement the bailout conditions.

But Chancellor Merkel and President Hollande issued strong statements reiterating their demands that Greece should stick to the bailout agreement. Both leaders stated that Greece must stick to the terms of the agreement and implement austerity measures if it wants to remain in the currency union.

In economic news, the UK services sector output declined in June, economy contracted and business investment fell in the second quarter. Spanish producer price inflation rose in July.

In Paris trading, the CAC-40 Index declined 9.89 or 0.3% to 3,422.67 and in Frankfurt the DAX Index edged lower 12.79 or 0.2% to 6,936.92.

For the week, the CAC-40 Index declined 1.9% and the DAX Index soared 12.7%.

The yields on Spain’s benchmark 10-year is at 6.40%. Italian 10-year yields were at 5.70%.

Spanish PPI Climbs

Spain''s producer price inflation rose to 2.6% annually in July from 2.5% in June, the statistics office INE said today.

On a monthly basis, producer prices climbed 0.8% in July following a 0.5% fall in June.

UK Service Sector Output Drops

The UK services sector output declined in June, according to data released by the Office for National Statistics today.

The index of services dropped 1.7% in June compared to the 0.9% rise in May.

Annually, services sector output declined 0.6% in June, following a 1.1% gain in May.

Separately, the UK economy contracted 0.5% in the second quarter, revised upwards by 0.2 percentage points from the fall of 0.7% published on July 25, data from the Office for National Statistics showed. This is the third consecutive quarterly contraction in GDP.

During the second quarter, construction provided the largest negative contribution to GDP growth.

In another report, business investment in the UK economy decreased in the second quarter, preliminary data from the Office for National Statistics showed.

Business investment for the second quarter was 1.5% lower than the previous quarter at £30 billion, and 1.7% higher than the same period last year.

Business investment between the first quarter and the second quarter saw a decrease in private sector non-manufacturing by £0.9 billion to £25.3 billion.

Hungarian Retail Sales Fall

Hungary''s retail sales eased 1.7% on an annual basis in June, from the 2.5% fall in May, data released by the Central Statistics Office showed.

Gainers & Losers

Agennix AG soared 16.7% to €0.42 after the biopharmaceutical company plans to cut its workforce by 55%.

Anglo American PLC fell 2.2% to 1,899 pence after the British miner and Chilean state-owned Corporación Nacional del Cobre de Chile agreed to form a new partnership in respect of certain of Anglo American’s copper interests in Chile, known as Anglo American Sur.

Aer Lingus Group plc rose 0.6% to €1.09 after the low-fares Irish airline reaffirmed its view that Ryanair''s offer to acquire control of Aer Lingus for €1.30 per share undervalues the company.

Derby Cycle AG climbed 1.4% to €32.37 after the bicycles manufacturer estimated revenues at the lower end of its existing forecast of between €250 million and €270 million for the current fiscal year.

Lonmin Plc declined 2.7% to 622.50 pence after the platinum group metals producer appointed Simon Scott, the Chief Financial Officer, as Acting Chief Executive Officer for the interim period till the current CEO, Ian Farmer resumes responsibility.