European Investors Shift Focus to Spanish Bailout

Arthi Gupta
17 Sep, 2012
New York City

The European indexes edged lower after the euphoria of the Fed stimulus action waned and leaders in the region step up diplomacy to decide the fate of larger bailout for Spain. The euro zone finance ministers meeting in Cyprus was inconclusive.

[R]3:00 PM Frankfurt – The European indexes edged lower after the euphoria of the Fed stimulus action waned and leaders in the region step up diplomacy to decide the fate of larger bailout for Spain. The euro zone finance ministers meeting in Cyprus was inconclusive.[/R]

European indexes pared gains after market indexes soared more than 2% in the region last week for the second week in a row.

The euro zone finance ministers meeting in Cyprus ended with no clear conclusion on Spain and Greek situations.

The European Commission President Jose Manuel Barroso’s plan to establish a single supervisory mechanism for banks in the euro zone from the beginning of 2013 was vetoed.

Separately, Spanish Prime Minister Mariano Rajoy will meet Italian Prime Minister Mario Monti in Rome on September 21 and German Chancellor Merkel is to hold talks with French President Francois Hollande in Ludwigsburg on September 22.

The International Monetary Fund and the European Central Bank have denied a report published in the Dutch daily Her Financieele Dagblad that the troika is contemplating a €300 billion bailout for Spain.

In Paris trading, the CAC-40 Index declined 22.99 or 0.6% to 3,558.59 and in Frankfurt the DAX Index edged lower 20.44 or 0.3% to 7,391.45.

The yields on Spain’s benchmark 10-year bond rose nine basis points to 5.88% and for Italian bond with a similar maturity climbed four basis points to 5.06%.

Euro Zone Surplus Narrows

The euro zone current account surplus narrowed a seasonally adjusted €9.7 billion in July from €14.3 billion in June, the European Central Bank said.

The surplus for goods declined to €7.5 billion in July from €12.7 billion in June, while surplus in services remained unchanged at €6.2 billion in July.

Separately, the euro zone trade surplus widened to €15.6 billion in July from €13.6 billion in June, Eurostat said today. In July 2011, the trade surplus was €2.1 billion.

Exports fell 2% on a monthly basis in July after rising 2.4% in June. Imports dropped 1.2% in July compared to the 0.7% rise in June.

The extra-EU27 trade in goods showed a surplus of €3.1 billion compared with €10.9 billion shortfall in July 2011.

In a separate report, euro zone labor costs increased 1.6% annually in the second quarter of 2012, following a 1.5% rise in the first quarter, data released by Eurostat showed.