European Markets Jump, Spanish Debt Downgraded

Arthi Gupta
11 Oct, 2012
New York City

The European indexes gained more than 1% and Spanish debt was downgraded to near junk level. Italian three-year bond yields rise in auction. German consumer prices climbed in September and Greek jobless rate rose to a new record in July.

[R]3:00 PM Frankfurt – The European indexes gained more than 1% and Spanish debt was downgraded to near junk level. Italian three-year bond yields rise in auction. German consumer prices climbed in September and Greek jobless rate rose to a new record in July.[/R]

European indexes edged higher as the markets in the region overlooked the latest downgrade of Spanish debt just above junk level. Italy sold €3.75 billion of three-year debt at higher yields.

Inflation in the euro area was mixed but Greek jobless rate rose to record levels and Swedish crown fell to a 3-month low after the latest read on inflation was below expectations and raised the prospect of a rate cut.

Spanish Ratings Cut

Standard & Poor''s lowered Spain''s long-term credit rating by two notches to ""BBB-"" from ""BBB+"" with a negative outlook, just above the junk level.

The agency said that the deepening economic recession is limiting the Spanish government''s policy options and rising unemployment and spending constraints are likely to intensify social discontent and contribute to friction between central and regional governments.

The International Monetary Fund Managing Director Christine Lagarde said in Tokyo that Greece needs another two more years to meet its budget targets.

The euro rebounded to $1.292 after Lagarde’ view on heavily indebted nations and her willingness to offer more time to meet the lender’s demand also removed some of the tail risk on the euro.

Separately, German Finance Minister Wolfgang Schaeuble said in Tokyo that the decision on extending the debt repayment schedule for Greece will be taken only after the troika assessment report but he reiterated that the euro area will not bear the burden of Greece’s debt.

In Paris trading, the CAC-40 Index gained 31.94 or 1% to 3,397.81 and in Frankfurt the DAX Index edged higher 77.78 or 1.1% to 7,282.84.

The yields on Spain’s benchmark 10-year climbed 10 basis points to 5.86%. Italian 10-year yields fell 4 basis points to 5.07%.

Italian Bond Auction

The Italian Treasury sold €3.75 billion of its three-year benchmark BTPs at an average yield of 2.86% compared to an average yield of 2.75% at the prior auction on September 13. The bid-to-cover ratio rose to 1.67 from 1.49 last month.

The country also raised €2.25 billion from the issue of bonds maturing in 2016, 2018 and 2025. The average yield on 2016 bonds was at 3.42% and that on 2018 bonds was at 4.06% whereas for the 2025 bonds, the average yield was 5.24%.

German, French, Spanish Inflation

Germany''s consumer price index rose 2% annually in September, unchanged from the preliminary estimates, final data released by the Federal Statistics Office showed.

Compared with August, the consumer price index remained unchanged in September confirming the flash estimates.

Separately, the French consumer price index declined 0.3% in September compared to a 0.7% rise in August. Annually, the consumer price index eased to 1.9%in September from 2.1% in August.

In another report, Spain''s consumer prices soared in September on an increase in sales tax, final data from statistics office INE showed.

The consumer price inflation climbed to 3.4% in September from 2.7% in August. The rate was initially estimated to rise to 3.5%.

Greek Jobless Rate Rises

The seasonally adjusted unemployment rate for Greece increased to 25.1% in July from the upwardly revised 24.8% in June, data from the Hellenic Statistics Authority showed.

In July 2011, the jobless rate was 17.8%.

Unemployment among youth, aged between 15 and 24, was 54.2% in July.

There were a total of around 1.26 million unemployed persons in the country in July, higher than 883,613 recorded a year earlier. Compared to June, the number of jobless persons rose 1.9%.

Unitech Sells Uninor Stake

Telenor ASA, the Norway-based telecommunication company said it has reached an agreement with its Indian wireless joint venture partner Unitech Ltd. to amicably settle all disputes between the two parties.

Unitech Ltd. has agreed to dispose of its shareholding in joint venture Unitech Wireless Ltd for a nominal amount. The joint venture has about 5% share of India’s 908 million subscriber market.

With the settlement, Uninor will control a new company and will be able to bid for the upcoming bandwidth auction through a new company and with a new partner.

Ericsson Inks Loan Agreement with EIB

Ericsson, the Swedish multimedia solutions provider signed a loan agreement with the European Investment Bank for €500 million.

The loan supports Ericsson''s research and development activities to develop the next generation radio and IP technology.