Euro Zone Economic Decline Deepens, Stocks Falter

Barry Randall
14 Feb, 2013
New York City

European markets fell across the region after the economy in the currency union shrank in the final quarter by 0.6%. For the 2012, the economy in the region fell 0.5%. However, in the quarter the decline deepened in Greece, Spain, Portugal and Italy. Nestle reported lower than expected sales gains.

[R]4:00 PM Frankfurt – European markets declined across the region after the economy in the currency union shrank in the final quarter by 0.6%. For the 2012, the economy in the region fell 0.5%. However, in the quarter the decline deepened in Greece, Spain, Portugal and Italy. Nestle reported lower than expected increase in sales.[/R]

Market indexes across Europe declined after economy shrank in the fourth quarter in the region.

In the three months to December, economy in the euro zone shrank 0.6% from the previous three months, according to the latest data released by the statistics office of the European Union. The GDP declined 0.5% in 2012 from the previous year.

Economy in Germany shrank 0.6% and in Italy declined 0.9% but France suffered lower shrink of 0.3%.

The downturn in Spain and Portugal deepened in the quarter and Greece continued to suffer with the largest plunge in the currency union. Annualized rates of decline increased in Italy to 3.7% in the quarter, in Portugal deepened to 7.2% and in Greece dropped to 6% compared to a year ago.

Market mood was also darkened after Vice President Vitor Constancio said market should determine the appropriate rate for euro in the currency market.

The comments dampened any expectations of market intervention by the central bank and also raised the prospect that the economy may be weaker than estimated by the current data.

In London trading, FTSE 100 index declined 0.5% or 29.90 to 6,329 and in Frankfurt, the DAX index dropped 1% or 73.6 to 7,638. In Paris, CAC 40 index fell 0.5% or 17 to 3,682.

Of the 17 largest markets in Europe, 15 declined. Market index in Spain plunged 1.9% and in Switzerland eased 0.3%.

Stocks in Review

ABB increased 4% to Sfr20.45 after it reported higher than expected earnings.

The Switzerland based power and automation group reported revenues in the fourth quarter ending in December increased 4% to $11.02 billion from $10.57 billion in the same period of last year. Net income in the quarter declined 27% to $604 million or 26 cents a diluted share compared to $830 million or 36 cents a share a year ago.

The company said the order backlog at the quarter end reached to $29 billion. Total revenues increased in the quarter, contribution of nearly $600 million from Thomas & Betts

Anheuser Busch InBev NV soared 6% to 68.55 euros after the largest brewer agreed to sell its Corona distribution network in the U.S. to Constellation Brands Inc for $2.9 billion to save its bid to purchase Mexico based Grupo Modelo.

BNP Paribas increased 3% to 47.20 euros after the French bank plans to increase its dividend to 1.50 euros from 1.20 euros a year ago and lower its cost base by 2 billion euros by 2015.

Bankia SA plunged 11% to 41.50 euros after the troubled bank plans to convert the bond to stock at 1 euro cent a share as a part of its financial reorganization. The news was reported by Madrid based Expansion.

Separately, the fund set up to rescue banks, FROB said its investment in the bank will lead to losses to current shareholders as it will seek drastic reduction in the nominal value of the share capital.

Britvic Plc plunged 7.5% to 387 pence after the Office of Fair Trading, a UK regulator, transferred the deal with the company to Competition Commission.

A.G. Barr Plc dropped the deal to acquire the company after the regulatory hurdle.

Electricite de France SA increased 5% to 14.90 euros after the largest power generator reported plans to lower costs and increase its dividend.

KBC Groep NV, the Belgium’s largest bank and insurance group soared 9% to 30.82 euros after it reported underlying income of 309 million euros and increased its dividend to one euro.

Nestle SA declined 2% after the branded packaged food seller reported organic sales in constant currency increased 5.9% in 2012, lower than 6% estimated by several analysts.

Renault SA soared 8% to 46.55 euros, after the second largest French automaker reported operating earnings before one-time items were 729 million euros.