ECB, BoE Cut Rates; German Auto Exports Fall

123jump.com Staff
06 Mar, 2009
New York City

European stocks fell sharply on economic concerns after leading central banks in Europe cut a half-point interest rate and economic data from the US, Germany and the euro region confirmed the deepening of recession. ECB and BoE lowered rates by 0.5% and ECB lowered growth estimate.

[R]1:00PM New York, 6:00 Frankfurt – European central banks cut lending rates; stocks tumble. German retail sales, car exports fall.[/R]

European stocks fell sharply on economic concerns after leading central banks in Europe effected a half-point interest rate cut and economic data from the US, Germany and the euro region confirmed the deepening of recession.

The Europe Central Bank (ECB) cut the key lending rate by half a percentage point to 1.5%, while the Bank of England also lowered its benchmark interest rate to by the same to 0.5%.

The ECB also lowered its growth projections for 2009 and issued a cautious statement, which ignited worries that a further rate cut may have a long-run negative impact on bank profitability.

Euro dropped after the rate action and declined for the fourth week against the dollar.

The U.S. Labor Department reported a surge in the number of people applying for unemployment benefits as the recession forced companies to downsize operations and cut more jobs. For the fifth week in a row initial claims of unemployment were higher than 600,000.

Retail sales and motor vehicle exports in Germany also slumped in February, according to Destatis. Exports of cars and parts constitute the largest proportion of Germany’s total exports, a key drive of economic performance.

European Union’s statistics office in Luxembourg also said fourth-quarter Gross Domestic Product in the euro region, a region of 16 nations, shrank 1.5% compared to the quarter before.

Salzgitter fell 12.5% after the largest steel maker in Germany issued a profit warning for the first half of the year citing depressed sales.

Market Sentiment

In Frankfurt trading the DAX 30 Index retreated 2.4% or 93.3 to 3,797.64.

Of the 30 DAX index shares, only 6 rose and 24 fell.

RWE AG rose 1.7%, followed by gains in Volkswagen AG of 1.7%, in Adidas AG of 1.3%, in Fresenius Medica of 0.3% and Merck KGAA of 0.2%.

Salzigitter AG decliners with a loss of 12.5% after the steelmaker painted a negative outlook for earnings, followed by losses in Muenchener Rue of 8.4%, in Commerzbank of 6.2%, in MAN AG of 5.6% and Allianz SE-REG of 5.2%.

In Paris trading the CAC 40 slid 1.9% or 50.38 to 2625.30

ECB, BoE Cut Rates

The ECB cut the key interest by half a percentage point to 1.5% -- the lowest ever -- amid predictions another rate cut may be coming. The second rate cut in nearly three months, after ECB urged policymakers and others to look for other measures to arrest the slowdown in the economy. The BoE today also cut its benchmark rate by 0.5% to 0.5%, the lowest in nearly five decades.

Jean-Claude Trichet, the president of the ECB, last month doubted the effectiveness of the measure to arrest economic downturn and kept the rate on hold, urging other policy options. But the widening of the recession forced the ECB to lower its economic growth forecast and trim the rate further. Of all central banks in the developing nations, ECB has taken hawkish attitude towards inflation and the U.S. has taken the most liberal view on inflation.

German Retail Sales, Car Exports Slump

The Federal Statistical Office or Destatis in preliminary report suggested, retail sales in Germany fell 1.3% in real terms and 1.2% in nominal terms in January relative to the comparable month in 2008.

According to the Wiesbaden-based national statistical bureau, after calendar and seasonal variation adjustments, the January turnover was smaller than December sales.

Turnover in January compared to that of December 2008 was 0.6% smaller in real terms and about 0.5% weaker in nominal terms.

The Destatis also reported that motor vehicle exports, Germany’s most important export goods, slumped 5.4% to 174.1 billion euros in the fourth quarter of 2008 compared to the same period in 2007.

On a year-on-year basis, German car exports grew steadily in the first half of 2008, but reversed the cycle by the third quarter, declining 20%.

The contraction has a bearing on Germany’s export performance since car exports constitute the largest proportion of Germany’s total exports. In 2008, exports of autos contributed 17.8% to the nation’s export followed by 15% of machinery and 14% of chemical products.