The European markets began Monday's session solidly in the green, following the announcement that Spain had secured EUR 100 billion in assistance from the Eurozone to help its struggling banking sector. The news was welcomed early Monday and sparked a rally in shares of European banks.
Over the course of the trading day, questions began to arise and profits began to erode. Borrowing costs began to increase in Spain around the middle of the day, with the yield on 10-year government bonds rising to around 6.5 percent. Investors are now wondering, now that Spain has accepted a bailout, what will happen in Italy? Also, the second round of elections in Greece will be held this weekend, which will likely determine whether Greece will leave the Eurozone.
Eurozone ministers agreed on Saturday to lend Spain up to EUR 100 billion to shore up its banks. The Group of Seven industrialized nations and the International Monetary Fund have welcomed the Eurozone governments' decision to provide financial support to Spain's ailing banking sector.
"I strongly welcome the statement by the Eurogroup, which complements the measures taken by the Spanish authorities in recent weeks to strengthen the banking system," IMF Managing Director Christine Lagarde said in a statement on Saturday. She said this scale of proposed financing, which is consistent with the capital needs identified in the FSAP, gives assurance that the financing needs of Spain's banking system will be fully met.
The EUR 100 billion bank recapitalization facility for Spanish banks covers a housing market collapse on a par with that seen in Ireland and is at the extreme end of the stress estimates, Fitch Ratings said Monday.
The agency said it estimated the Spanish bank recapitalization to total approximately EUR 60 billion, when it had downgraded the country's sovereign to 'BBB'/Negative last week. If Spain uses EUR 60 billion of the bailout fund, it will put Spain's gross general government debt on a trajectory to peak at 95 percent of GDP in 2015, Fitch said.
The recovery of the British economy is being "killed off" by the Eurozone debt crisis, UK Chancellor George Osborne wrote in the Sunday Telegraph.
"Our recovery - already facing powerful headwinds from high oil prices and the debt burden left behind by the boom years - is being killed off by the crisis on our doorstep," he wrote in the newspaper's Sunday edition.
The Euro Stoxx 50 index of eurozone bluechip stocks fell by 0.35 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, advanced by 0.07 percent.
The FTSE 100 of the U.K. declined by 0.05 percent and the CAC 40 of France lost 0.29 percent. The DAX of Germany finished higher by 0.17 percent and the SMI of Switzerland rose by 0.03 percent.
In Frankfurt, Volkswagen climbed by 1.35 percent. Reportedly the company is considering a stake in troubled U.S. truck-maker Navistar International.
Deutsche Bank dipped by 0.42 percent and Commerzbank fell by 1.80 percent.
Societe Generale upgraded its rating on Henkel to "Buy" from "Hold." The stock increased by 0.23 percent.
Fresenius climbed by 1.26 percent, after boosting its profit forecast for 2012.
In Paris, Credit Agricole finished lower by 3.71 percent. Societe Generale declined 3.14 percent and BNP Paribas decreased by 1.65 percent.
In London, Lloyds Banking Group finished higher by 1.73 percent. Barclays added 0.11 percent, but Royal Bank of Scotland fell by 0.72 percent.
Tesco finished with a modest gain. The supermarket chain reported a modest increase in first-quarter sales and said its performance in the UK has been steady during a challenging quarter for the industry as a whole.
Severfield-Rowen sank by 6.85 percent, after issuing a profit warning.
Mouchel Group plunged by 28.34 percent. The firm issued an interim management statement, saying a review of options to provide the firm with a long term sustainable capital structure is progressing. However, all options being considered will result in only limited value for existing shareholders.
Flybe Group increased by 7.66 percent. The carrier reported a wider full year pre-tax loss, but said it is well placed to take advantage of any improvement in the UK macro environment.
Societe Generale lowered its rating on Nestle to "Hold" from "Buy." The stock finished up by 0.09 percent in Zurich.
French industrial production grew unexpectedly in April driven by higher energy consumption due to relatively low temperature, while the decline in manufacturing output suggests that conditions remain weak. Industrial production grew 1.5 percent in April from a month ago, data from the statistical office Insee showed Monday. The expansion was in contrast to the expected 0.1 percent drop, and followed the 1 percent decrease in March.
French manufacturing production declined less than forecast in April, while industrial production grew unexpectedly, data from the statistical office Insee revealed Monday. Manufacturing output dropped by 0.7 percent month-on-month, partially offsetting March's 1.4 percent increase. Economists were forecasting a 1.2 percent decrease for April.
The Italian economy contracted 0.8 percent quarter-on-quarter in the first quarter of 2012, final data from the statistical office Istat confirmed Monday. The latest contraction in the gross domestic product signaled deepening recession in the economy.
by RTT Staff Writer
For comments and feedback: editorial@rttnews.com
Market Analysis