European Indexes Soar 2%, Unemployment Rate Stable

Arthi Gupta
14 Sep, 2012
New York City

The European indexes soared after the U.S. Federal Reserve began the third round of stimulus action. Euro area annual inflation increased and net borrowing by Spanish banks rose in August. G20 gross domestic product growth slowed in the second quarter.

[R]2:15 PM Frankfurt – The European indexes soared after the U.S. Federal Reserve began the third round of stimulus action. Euro area annual inflation increased and net borrowing by Spanish banks rose in August. G20 gross domestic product growth slowed in the second quarter.[/R]

European indexes surged after the U.S. Federal Reserve embarked on the third round of stimulus action to revive the economic growth and lower the chronic high unemployment rate.

The latest measures are directed at the purchase of mortgage bonds and the central bank plans to purchase $40 billion of bonds every month for as long as necessary till the unemployment rate come down from the present rate of above 8%.

The Fed’s policy committee also held interest rate near zero and plans to keep the short term rates at this level six months longer than previously targeted through mid-2015.

The Fed today also lowered its outlook on the economic growth this year between 1.7% and 2%, down from the previous estimate of growth of 1.9% to 2.4%. However, the unemployment rate is expected to stay above 8% this year and is estimated to fall to as low as 7.6% next year and 6.7% in 2014.

Euro zone finance ministers meet in Cyprus for a 2-day meeting later today to finalize the bailout program and conditions for Spanish bank bailout and review the progress of Greek austerity commitment.

Expectations are high that Spanish Prime Minister Mariano Rajoy may formally request a larger bailout and Greece will seek more time to begin repayment of debt.

In Paris trading, the CAC-40 Index soared 71.07 or 2% to 3,573.16 and in Frankfurt the DAX Index edged higher 104.75 or 1.4% to 7,414.83.

For the week, the CAC-40 Index climbed 1.5% and the DAX Index soared 20.7%.

The yields on Spain’s benchmark 10-year were at 5.67%. Italian 10-year yields fell 6.6 basis points to 4.96%.

Spanish banks'' gross borrowing from the European Central Bank rose in August, the Bank of Spain said today.

Net borrowing by Spanish banks rose to €388.7 billion in August. However, gross borrowing increased to about €411.7 billion from €402.2 billion in July.

G20 Economy Contracts

Gross domestic product growth in the G20 area slowed to 0.6% in the second quarter compared with 0.7% in the first quarter, the Organization for Economic Cooperation and Development said. This marks the third consecutive quarter of slowing growth in the G20 area but masks diverging patterns across economies.

GDP also contracted 0.1% in the European Union of 27 nations, and 0.2% in the euro zone.

Euro Zone Inflation Climbs

Euro area annual inflation increased to 2.6% in August, from 2.4% in July, final data issued by Eurostat showed today. A year earlier the rate was 2.5%.

From a month ago, inflation was 0.4% in August.

In EU27, annual inflation increased to 2.7% in August from 2.5% in July. A year earlier the rate was 3%.

On a monthly basis, inflation was 0.4% in August.

Separately, the number of persons employed remained stable in the euro area during the second quarter, after falling 0.3% sequentially in the prior quarter, Eurostat reported today.

Total of 146.4 million people were employed in the euro area in the second quarter.

Annually, employment fell 0.6% in the euro area in the second quarter, following a 0.5% decline in the first quarter.

Employment in EU27 rose 0.1% sequentially in the second quarter, from the 0.1% drop in the first quarter.

Compared with the same quarter of the previous year, employment fell 0.2% in the EU27 in the second quarter, from a 0.2% drop in the first quarter.