The European markets were under pressure on Thursday, following a Spanish downgrade by ratings agency Moody's. Markets finished mixed, as investors await the result of the second round of Greek elections, which will take place on Sunday. Concerns over debt contagion also affected the markets on Thursday, as the yields on Spanish and Italian government bonds continued to rise.
In yet another blow to Europe's efforts to contain the deepening debt crisis, Moody's Investors Service on Wednesday downgraded two euro area members, Spain and Cyprus, and placed their bond ratings on review for further possible downgrade.
Spanish government bond rating was lowered by three notches to Baa3 from A3, just one notch above the junk level. Moody's said the government's decision to seek EUR100 billion financial support from EU will further increase the country's debt burden, which has risen dramatically since the onset of the financial crisis.
At the same time, reports said that Egan-Jones Ratings Company downgraded Spanish debt ratings to CCC+ from B on Wednesday, pushing the country's ratings deeper into junk.
Spanish banks' net borrowings from the European Central Bank rose to a record high in May, data from Bank of Spain revealed Thursday. ECB's net lending to Spanish banks surged to an all-time high of EUR 287.8 billion in May from EUR 263.5 billion in April. Spanish lenders' appetite for cheap ECB loans has been rising steadily since September last year.
The Spanish 10-year bond yield hit a euro-era record 7 percent on Thursday, while the Italian 10-year yield was close to 6.30 percent. Yields above 6 percent are seen unsustainable and markets remain concerned that Italy would be the next in line to seek a bailout.
German Chancellor Angela Merkel said Thursday that Germany is ready to use its powers to mend the global economy. Speaking to the German Parliament, she urged other euro nations not to overestimate Germany's ability to fight the crisis. Its "strength is not unlimited," Merkel was quoted as saying.
At the same time, she reiterated her opposition to any quick solution to the crisis, saying that quick fixes such as joint liabilities are "counterproductive."
The Euro Stoxx 50 index of eurozone bluechip increased by 0.23 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, lost 0.32 percent.
The CAC 40 of France climbed by 0.08 percent, but the DAX of Germany decreased by 0.23 percent. The FTSE 100 of the U.K. dropped by 0.31 percent and the SMI of Switzerland finished down by 0.61 percent.
In Frankfurt, Daimler declined by 2.17 percent. BMW fell by 2.82 percent and Volkswagen closed lower by 0.66 percent.
Kabel Deutschland rose by 0.68 percent. The cable operator reported a profit for the fourth quarter, and added that it would keep its dividend for 2012/2013 unchanged from the prior year.
Fraport finished down by 0.02 percent. The operator of Frankfurt Airport reported a slight increase in passenger traffic for May.
Dialog Semiconductor dropped by 8.10 percent, after Berenberg downgraded the stock to "Hold" from "Buy."
Cheuvreux reduced its rating on RWE to "Outperform" from "Selected List." The stock closed higher by 0.64 percent.
Cheuvreux upgraded HeidelbergCement to "Outperform" from "Underperform." The stock ended the session lower by 1.68 percent.
TUI rose by 2.09 percent. The travel firm was upgraded to "Buy" from "Hold" at Deutsche Bank.
In Paris, Peugeot dropped by 2.15 percent and Renault lost 1.39 percent.
In London, British Sky Broadcasting Group declined by 3.52 percent. Sky has successfully secured 116 live matches per year for Premier League seasons running from 2013-14 until 2015-16.
BT Group fell by 3.54 percent. The company was awarded the A and G packages of live rights for the 2013/14 to 2015/16 Premier League seasons.
Mulberry Group sank by 22.50 percent. The luxury group posted a 54 percent surge in pre-tax profit for fiscal year 2012, but said its short-term trading outlook is more challenging, given the current economic conditions.
ComputaCenter shares plunged by 12.25 percent, after the IT infrastructure company said it would incur additional start-up costs this year related to its contract wins.
The Swiss National Bank has recommended that UBS continue with its capital strengthening process. The SNB expects Credit Suisse to accelerate its process and take all action necessary to expand its loss-absorbing capital base significantly during the current year.
At the end of March, the share of loss-absorbing capital in the net balance sheet total was 2.7 percent at UBS and only 1.7 percent at Credit Suisse. This capital, according to the SNB report, would be insufficient to absorb losses such as those experienced by UBS in the recent financial crisis.
Credit Suisse dropped by 10.5 percent in Zurich, while UBS fell by 0.27 percent.
Eurozone inflation slowed to a 15-month low in May as initially estimated, data from Eurostat showed Thursday. Annual inflation fell to 2.4 percent from 2.6 percent in April. Nonetheless, inflation continues to stay above the European Central Bank's 'below, but close to 2 percent' target.
Wholesale price inflation in Germany eased to 1.7 percent in May from 2.4 percent in April, the Federal Statistical Office said Thursday.
A leading indicator of the British economy increased for the fourth successive month in April, but at a slower rate compared to the previous month, data released by Conference Board showed Thursday. The leading economic index increased 0.2 percent from the previous month to 104 in April, marking the fourth consecutive monthly gain.
New claims for unemployment insurance in the U.S. unexpectedly saw a modest increase in the week ended June 9th, according to figures released Thursday by the Labor Department. Initial jobless claims came in at a seasonally adjusted level of 386,000, an increase of 6,000 from the previous week's revised level of 380,000. The increase surprised economists, who had expected jobless claims to edge down to 375,000 from the 377,000 originally reported for the previous week.
U.S. consumer prices fell for the first time in two years in May, with the significant decline fueled by lower energy prices, according to figures released Thursday by the Labor Department. The consumer price index, a measure of inflationary pressure on the economy, fell by 0.3 percent in May. The largest monthly decline since December 2008 was a modest surprise to economists expecting consumer prices to fall at a slightly slower 0.2 percent pace.
by RTT Staff Writer
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