Rates in Europe, UK on Hold; Vodafone Reaffirms Outlook

Barry Randall
07 Feb, 2013
New York City

European markets were generally steady after the central banks in Europe and U.K. left key rates unchanged. Spain completed its bond offering at higher yields but yields fell at French bond auction. Vodafone reiterated its earnings outlook.

[R]4:00 PM Frankfurt – European markets were generally steady after the central banks in Europe and U.K. left key rates unchanged. Spain completed its bond offering at higher yields but yields fell at French bond auction. Vodafone reiterated its earnings outlook.[/R]

European markets held steady with a slight negative bias after the European Central Bank left its key lending rate unchanged and France and Spain sold more than expected bonds.

In London the FTSE 100 index decreased 0.3% or 18.6 to 6,277 and in Frankfurt the DAX index added 0.9% or 64.6 to 7,646. In Paris, CAC 40 index added 0.1% or 5.1 to 3,648.

Markets in 12 of the 17 countries in the currency zone traded higher after the rates were on hold as expected by most economists.

The European Central Bank left its key lending rate at 0.75% as expected by most economists. The Bank of England also left its key reference rate at 0.5% and refrained from providing adding stimulus to the economy or expand its bond purchase program.

Spain Completed Bond Auction at Higher Yields

Spanish government completed the bond auction at higher yield and more investors participated in the auction than expected despite the growing political worries.

The government issued 26-year bond for the first time in more than three years as most of the offering in the recent years has focused on shorter term maturities.

Spain’s treasury sold today 1.95 billion euros of 2-year bonds that yielded 2.823%, higher than 2.476% in the previous auction in January. The bid-to-cover ratio was 2.21 compared to 2.07 in the previous auction.

The treasury also sold 2.07 billion euros of 5-year bonds that yielded 4.1% compared to previous auction of 3.77%. The bid-to-cover ratio was 2.24 compared to 2.32 in the previous auction.

In the third auction the treasury sold 2.02 billion of 26-year bond that yielded 5.787% compared to previous yield of 4.89%. The bid-to-cover ratio declined to 2.02 from 2.22.

With the offering today, the government has completed the 19% of its debt sale requirement this year.

French Bond Yields Fall in Auctions

French treasury completed the sale of 7.98 billion euros of government bonds at lower yield compared to previous auction in January.

France completed the offering of 10-year OAT bonds worth 7.98 billion euros with the average yield of 2.30% compared to 2.07% at the previous auction in January.

France also sold 7-year bond of 1.77 billion euros that yielded 1.83% and 14-year bond of 3.19 billion euros that yielded 2.85%.

The demand at the auction was stronger than expected and the average yields at the auction were lower than in the previous auctions.

Stocks in Review

Banks traded higher after the European Central Bank left its key rate on hold at 0.75%.

Deutsche Bank declined 0.3% to 37.08 euros and the company is said to fire five employees including two managing directors for attempting to manipulate Libor rate.

Credit Suisse increased 4%, BNP Paribas gained 0.7% and Societe Generale SA added 1.3%. Credit Agricole added 1%. UniCredit SpA increased 1.5% and Banco Monte dei Paschi de Siena SpA soared 6%.

Alcatel SA increased 3% to 1.32 euros after surging as much as 10% after chief executive Ben Verwaayen resigned after his nearly five-year effort to revive sales at the company.

The maker of telecom electronics components reported a net loss of 1.37 billion euros and also booked 1.4 billion euros in asset impairment charges.

Burberry Group Plc dropped 5% to 1,355 pence after the company made executive changes. Carol Fairweather will replace Stacey Cartwright as chief financial officer. John Smith will assume the office of chief operating officer.

Compass Group Plc increased 1.5% to 777 pence after the airline caterer reported higher than expected growth in sales in the first quarter.

Sanofi decreased 2.3% to 67.80 euros after the drug maker estimated earnings per share may drop as much as 5% on higher competition from generic drug makers for its blood thinner product Plavix.

Statoil SA increased 2% to NK147 reported fourth quarter adjusted net income of NK15.1 billion or nearly $2.8 billion.

Vodafone Plc increased 2% to 173.7 pence after the mobile telecom operator reiterated its estimate for adjusted operating income for the year ending in March between 11.1 billion and 11.9 billion pounds.