The European markets finished in positive territory on Wednesday, rebounding from yesterday's sluggish performance. Tuesday's disappointment over Ben Bernanke's testimony before the Senate was replaced by excitement over some strong earnings results. However, investors continued to watch the U.S Federal Reserve Chairman's testimony on Wednesday, hoping for some hint regarding plans for a third round of quantitative easing. The unexpected dip in the U.K.'s unemployment rate was another welcome development. The European markets received further support in the afternoon, from the positive performance of the U.S. stock markets.
Federal Reserve Chairman Ben Bernanke warned lawmakers they may push the U.S. economy into recession unless they back away from an impending "fiscal cliff." The fragile recovery, already showing obvious signs of weakness, will be severely damaged by spending cuts and tax increases that will automatically kick in at the start of 2013, the nation's top central banker told the House Financial Services panel Wednesday morning.
Congress must act now to restore confidence amid a worrisome drop in business spending and new hiring, according to the Fed chief. Bernanke assured that the Fed has further easing measures at its disposal, but cautioned that any additional support would be wasted unless Congress can reach a compromise.
Germany sold its 2-year treasury notes at negative yield for the first time on Wednesday as investors continued their flight to safety, reports said citing Bundesbank data. The country raised EUR 4.173 billion from the sale of its June 2014 treasury notes, also known as Schatz. The target set for the auction was EUR 5 billion. The yield on the debt was -0.06 percent, down from 0.10 percent in the previous sale on June 20.
Bank of England policymakers raised the size of economic stimulus by GBP 50 billion this month through a split vote as Spencer Dale and Ben Broadbent voted to retain it at GBP 325 billion, the minutes of the meeting revealed Wednesday.
At the meeting held on July 4 and 5, seven members of the Monetary Policy Committee including Governor Mervyn King sought an increase in quantitative easing to GBP 375 billion. All nine of the members voted to hold the interest rate at a record low 0.50 percent.
European Central Bank Executive Board member Joerg Asmussen said Tuesday that a deeper economic union may require further sharing of sovereignty. "It means endowing the euro area with the power to effectively prevent and cor¬rect unsustainable policies in every euro area Member State," he said during a policy briefing at the European Policy Centre, Brussels.
This would imply that a euro area authority would have compe¬tence to limit countries' ability to issue debt and have intervention rights into national budgets, and to compel Member States to cor¬rect their policies, be that in the fiscal, struc¬tural and financial fields, he added.
The French economy can grow at least 1 percent next year if the government sticks to deficit reduction measures and reforms, European Central Bank Governing Council member Christian Noyer said in an interview on Wednesday.
There should be a gradual recovery in the second half of this year, which could help the economy to surpass the IMF's estimate of 0.8 percent growth in 2013, Noyer, who heads Bank of France, told Europe 1 radio.
Spanish banks' bad loans increased to 8.95 percent of total lending in May, the Bank of Spain reported Wednesday. The bad-loan ratio rose from 8.7 percent in April. Bad loans rose to EUR 155.84 billion in May, the highest since April 1994.
Portuguese recession could prove more protracted than currently envisaged, though the government has implemented the fiscal reforms as planned, the International Monetary Fund has warned.
"Export growth has been a bright spot, offsetting weaker domestic demand conditions and supporting output. But if conditions in the euro area weaken further, this would affect the growth outlook," the fund said in a report on Tuesday.
The Euro Stoxx 50 index of eurozone bluechip stocks increased by 1.36 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, added 1.04 percent.
The DAX of Germany climbed by 1.62 percent and the CAC 40 of France gained 1.84 percent. The FTSE 100 of the U.K. rose by 0.92 percent and the SMI of Switzerland finished up by 1.02 percent.
In Frankfurt, shares of Puma dropped by 4.90 percent. The company said it expects a decline in profits for the first half of the year due to a slowdown of business, particularly in Europe.
In Paris, Alcatel-Lucent fell by 0.88 percent, extending Tuesday's steep slide after issuing a profit warning.
Accor SA closed higher by 0.72 percent. The French hotel group announced a decline in revenues for the second quarter, hurt mainly by changes in scope of consolidation. On a like-for-like basis, the company reported a 3.1 percent rise in revenues.
In London, BHP Billiton increased by 1.82 percent. The mining giant reported a 15 percent year-over-year increase in iron ore production for the fourth quarter, and 8 percent growth from the previous third quarter.
Fresnillo gained 1.49 percent, after reporting gold production results for the second quarter.
Ashmore Group finished higher by 2.73 percent. Goldman Sachs upgraded its rating on the stock to "Buy" from "Neutral."
Shares of Credit Suisse rose by 4.00 percent in Zurich, after the investment bank unveiled plans to boost its capital in preparation for Basel III regulatory requirements.
Eurozone construction production rebounded moderately in May, data released by statistical office Eurostat showed Wednesday. Production in the construction industry edged up by 0.1 percent month-on-month in May, recovering modestly from the previous month's 3.7 percent decrease.
Unemployment in the United Kingdom decreased between March and May despite increasing evidence that the economy would have contracted for a third successive quarter in the second quarter. The upcoming London Olympics boosted employment during the period.
The ILO unemployment rate fell to 8.1 percent in March-May from a revised 8.3 percent in the three months through February, data from the Office for National Statistics revealed Wednesday. Economists had expected the rate to remain unchanged from the February quarter's original figure of 8.2 percent.
Housing starts and building permit data released by the Commerce Department on Wednesday painted a mixed picture for the future of the beleaguered U.S. housing market. Privately-owned housing starts jumped a notable 6.9 percent to a seasonally adjusted annual rate of 760,000 in June compared to revised figures for May. Furthermore, the May estimate was revised up to 711,000 from the 708,000 initially reported. Most economists had predicted a rebound in new housing starts for June, though most had forecast the rate rising to a somewhat lower level of 745,000.
Meanwhile, new building permits slipped to a seasonally adjusted annual rate of 755,000 in June, representing a 3.7 percent decline from May levels. The drop by building permits came after they reached their highest level since September of 2008 in the previous month.
by RTT Staff Writer
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