Lower Banks Drag European Indexes 2%

Mayank Mehta
21 Jan, 2010
New York City

European markets declined nearly 2% for the second time this week and erased the gains of the year. Banks led the decliners after the U.S. proposed limiting risk taking activities by banks. Euro was under pressure as a measure of economic growth softened.

[R]7:00 PM Frankfurt, Paris; 1:00 PM New York – European markets declined nearly 2% for the second time this week and erased the gains of the year. Banks led the decliners after the U.S. proposed limiting risk taking activities by banks. Euro was under pressure as a measure of economic growth softened.[/R]

European markets traded volatile with the euro bouncing around its two-month low and Greek bonds rallying.

A private measure of economic expansion indicated slower than expected growth. Indexes turned lower and dropped close to 2% after the U.S. administration proposed a separation of risk taking activities from the commercial banks.

A composite index of manufacturing and service industry as measured by Markit Economics declined to 53.6 in January from 54.2 in December. A read above indicates an expansion. Service index declined more than expected to 52.3 from 53.6 in December and manufacturing index increased to 52 from 51.6.

The euro declined as much as 0.45% to $1.4054 and bounced back to $1.407 after the release of the report.

Greek bonds rebounded after finance minister Papconstantinou said that the country does not need emergency funding from other member nation in the union. He added that the government is scheduled to raise 50% of its financing need in the second quarter of this year and yields on the bonds will decline as time passes.

The 10-year Greek bond yields declined 6 points to 6.12% after surging to a record high 6.25%. Yield spreads to German bonds increased to 301 basis points.

The Greece based Public Debt Management Agency said that the country is expected to raise €54 billion compared to €67 billion in 2009 and most of its debt requirement is roll over the debts maturing in the second quarter.

In London FTSE 100 Index closed lower 85.70 or 1.58% to 5,335.10, in Paris CAC 40 Index decreased 66.79 or 1.70% to close at 3,862.16, in Frankfurt DAX index lower 104.56 or 1.79% to close at 5,746.97. In Zurich trading SMI decreased 7.58 or 0.12% to close at 6,578.95.

UK budget gap in December widened to £15.7 billion from £13.8 billion a year ago month according to the latest data released by the Office for National Statistics. The cash requirements in the month surged to £23.6 billion from £21.6 billion a year ago.

The UK deficit for the fiscal year from April to December increased to £119.9 billion from £63.3 billion a year ago period and net debt increased to 61.7% of gross domestic product or £870 billion. The deficit is record high since 1974, when records keeping began.

Gainers & Losers

Areva SA added 0.1% to €356.25 and the company signed the agreement with Schneider Electric to sell its transmission and distribution agreement as previously announced.

Aragon AG the financial services broker rose 1.7% to €10.10.

Aufeminin.com SA the women’s Web-site manager advanced 5.7% to €12.00.

Bayer AG fell 1.5% to €52.87 on a brokerage downgrade.

Eramet SA rose 1.1% to €237.50 and the talks to sell 25% stake held by Areva SA in mining company to France''s strategic investment fund have stalled, French newspaper Les Echos reported on Thursday.

Ingenico SA rose 0.06% to €17.01 after the maker of payment terminals announced the appointment of Philippe Lazare as the new chairman and CEO as of January 20 replacing Jacques Stern who will remain the director of the company.

ModeLabs Group SA the mobile-phone maker fell 6.7% to €2.20.

Merck KGaA declined 1.3% to €66.79.

Metro AG added 1.4% to €41.28 after the retailer was upgraded to “buy” from “hold” at UniCredit Markets & Investment Banking.

Remy Cointreau SA dropped 1.3% to €36.69 after the producer of wines and spirits said Thursday its nine-month sales fell 2.6% to €588.8 million.

RWE AG rose 0.9% to €67.86 after the utility was upgraded to “overweight” from “neutral” at HSBC Holdings Plc.

Sanofi-Aventis SA rose 0.1% to €56.78 after the drugmaker was downgraded to “equalweight” from “overweight” at Morgan Stanley.

Total SA rose 1.3% to €44.97 after the oil refiner said it is restructuring petroleum product logistics operations in France in response to declining petroleum product demand.

Vetoquinol SA the drug-testing company decreased 0.1% to €23.87.

DAX Index Movers

Bayer AG led the decliners in the DAX index of 4.86%, followed by losses in ThyssenKrupp AG of 4.74%, in Commerzbank AG of 4.47%, in Salzgitter AG of 3.82%, and in K+S AG of 3.80%.

Henkel AG led gainers in the DAX index with a rise of 0.81%.

CAC-40 Index Movers

Societe Generale SA led the decliners in the CAC-40 index of 4.74%, followed by losses in ArcelorMittal of 3.74%, in Credit Agricole SA of 3.57%, in Lafarge SA of 3.52%, and in Alcatel Lucent of 3.39%.

Unibail-Rodamco SA gainers in the CAC-40 index with a rise of 0.48% followed by gainers in Veolia Environnement of 0.12%.