European Indexes Lower, ECB Speculation Dominates

Arthi Gupta
28 Aug, 2012
New York City

The European indexes declined after Japan lowered growth assessment. Spanish and Italian borrowing costs fell in bond auctions today. German consumer confidence set to remain stable in September. Credit Agricole second quarter net income plunged 67%.

[R]2:30 PM Frankfurt – The European indexes declined after Japan lowered growth assessment. Spanish and Italian borrowing costs fell in bond auctions today. German consumer confidence set to remain stable in September. Credit Agricole second quarter net income plunged 67%.[/R]

Markets in Europe focused on world markets and the latest economic downward assessment from Japan knocked the sentiment lower.

European Central Bank President Mario Draghi will not be attending the world meeting of central bankers later in the week in the U.S. fueling a speculation that the bank is working on finalizing the details to support sovereign bonds market.

Separately, the Swiss National Bank said there is no need to activate countercyclical capital buffers because in its view the momentum on the domestic residential mortgage and real estate markets as exceptionally strong.

Political leaders shift focus to Spain and leaders ramp up meetings this week to finalize the process of releasing capital to Spanish banks.

Spanish Prime Minister Mariano Rajoy is scheduled to meet European Council President Herman Van Rompuy later today. The Spanish premier will also meet with French President Francois Hollande later this week.

In Paris trading, the CAC-40 Index declined 23.81 or 0.7% to 3,439.02 and in Frankfurt the DAX Index edged lower 37.95 or 0.5% to 7,009.48.

The yields on Spain’s benchmark 10-year rose 2 basis points to 6.4% and the Italian benchmark yields climbed four basis points to 5.75%.

Spanish Bond Auction

The Spanish Treasury sold €3.607 billion worth treasury bills at lower borrowing costs today.

Spain sold €1.674 billion of 3-month treasury bills at an average yield of 0.946% compared to an average yield of 2.434% at a similar auction on July 24. The bid-to-cover ratio was 3.35 compared with 2.94 in July.

The Treasury also sold €1.93 billion of the 6-month debt at an average yield of 2.026% from 3.691% last month. The bid-to-cover ratio fell to 2.17 from 3.02.

Italian Bond Auction

Italy sold €3 billion of 24-month zero-coupon bonds at an average yield of 3.064% compared to an average yield of 4.860% at a prior auction on July 26.

The country also sold €750 million of four- and seven-year inflation-linked bonds. The average yield on the four-year paper fell to 3.69% from 5.20% from the last auction.

The average yield on the seven-year bond rose to 4.39% from 4.32% in the last auction.

German Confidence Stable

German consumer confidence remains stable in September, according to a report released by GfK.

The group said its consumer confidence index for September was at 5.9 in September, unchanged from August.

The economic expectations of German consumers declined for the third time in a row. In August, the index fell by 13.3 points to -18.9 points. In the prior month, the index decreased 8.6 points.

Gainers & Losers

Credit Agricole SA gained 0.3% to €4.29 after the French lender reported second quarter net income group share plunged 67% to €111 million compared with €339 million in the second quarter of 2011 on €427 million of the impairment of Intesa Sanpaolo shares and €370 million costs in Greece.

Ipsen SA soared 3.5% to €19.21 after the pharmaceutical company said first-half total revenues rose 9% to €675 million from a year before. Consolidated net profit attributable to the company''s shareholders fell 1.6% to €90.2 million or €1.07 per share, from €91.7 million or €1.09 per share last year.

Vestas Wind Systems A/S surged 16.7% to DKK 39.58 after the Danish wind-turbine maker confirmed that is in dialog with Mitsubishi Heavy Industries that may lead to strategic cooperation.