The European markets ended the day with mixed results again on Wednesday. The highly anticipated German court ruling on the ESM was announced today, which will allow it to be ratified, but with some conditions. Investors have now shifted their focus to tomorrow's announcement from the U.S. FOMC meeting and the subsequent press conference from Fed Chairman Ben Bernanke.
Germany's top court has cleared the way for the ratification of the European Stability Mechanism, or ESM, rejecting temporary injunctions against the bailout fund and the fiscal compact in its much-anticipated judgment on Wednesday. However, the court imposed certain conditions, including capping Germany's ESM liability.
The court said Germany must cap its bailout fund liability at EUR 190 billion and further expansion of the country's ESM share needs to get the backing of the Parliament. Also, both houses of the Parliament must be informed of any decisions on the ESM in future, the Court said.
"No provision of this Treaty may be interpreted in a way that establishes higher payment obligations for the Federal Republic of Germany without the agreement of the German representative," the court said in a statement.
European Commission President Jose-Manuel Barroso on Wednesday proposed a single supervisory mechanism (SSM) that will give sweeping powers to the European Central Bank, including overview of some 6,000 banks across Europe.
The new mechanism will give ultimate supervisory responsibility related to financial stability of all banks in the euro area to the ECB. Nonetheless, national supervisors will continue to play an important role in day-to-day supervision and in preparing and implementing ECB decisions.
Italy's yield declined at its short-term bill auction on Wednesday after Germany's top court approved bailout fund with conditions. The Treasury raised EUR 12 billion from 3-month and 12-month T-bills and met the maximum target. The average yield on 3-month bills fell to 0.7 percent from 0.865 percent at the prior auction in May.
Meanwhile, an auction of Germany's five-year federal notes on Wednesday saw the demand for the safe haven debt decline just hours after the country's top court cleared the ratification of the Eurozone's permanent bailout fund.
The country raised EUR 3.972 billion from the sale of its new 5-year Federal Notes, which are also known as Bobls, against a target of EUR 5 billion, Bundesbank said. The auction for the October 2017 instrument attracted bids totaling EUR 5.474 billion. The average yield on the five-year debt rose to 0.61 percent from 0.31 percent paid for a security of similar maturity on August 1.
The Euro Stoxx 50 index of eurozone bluechip stocks increased by 0.26 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, lost 0.32 percent.
The DAX of Germany climbed by 0.46 percent and the CAC 40 of France gained 0.18 percent. The FTSE 100 of the U.K. fell by 0.17 percent and the SMI of Switzerland declined by 0.21 percent.
In Frankfurt, Commerzbank gained 7.22 percent, Deutsche Bank lost 0.54 percent.
Volkswagen increased by 2.61 percent and BMW added 2.12 percent.
In Paris, Credit Agricole surged by 5.78 percent after Credit Suisse raised its rating on the stock. Societe Generale also gained 0.28 percent.
Peugeot increased by 6.48 percent and Renault closed higher by 2.64 percent.
In London, Kingfisher rose by 0.99 percent, after reporting results for the first half of the year.
Barclays gained 1.64 percent and Lloyds Banking climbed by 3.89 percent. Royal Bank of Scotland advanced by 3.78 percent and HSBC rose by 0.80 percent.
Nomura downgraded Vodafone to "Neutral" from "Buy." The stock fell by 1.50 percent.
Shares of Burberry group were under pressure again Wednesday, following its profit warning yesterday. The stock closed lower by 1.47 percent.
Barratt Developments sank by 6.42 percent. The company reported an annual profit, but did not announce a dividend, stating it plans to resume dividend next year.
Industrial production in the euro area increased in July, recovering from the previous month's decline, and the rate of growth exceeded economists' forecast, data released by statistical office Eurostat showed Wednesday.
Industrial production increased 0.6 percent on a monthly basis in July, reversing June's 0.6 percent decrease. Economists were looking for a 0.1percent gain.
Germany's inflation, measured by the harmonized index of consumer prices (HICP), rose to 2.2 percent in August from 1.9 percent in July, final data released by the Federal Statistical Office confirmed Wednesday.
French annual inflation rose more than expected in August, data from the statistical office Insee showed Wednesday. EU harmonised annual inflation came in at 2.4 percent in August, up from 2.2 percent in July and slightly above the 2.3 percent rise forecast by economists.
French current account deficit declined in July, data published by the Bank of France showed Wednesday. The current account deficit narrowed to EUR 2.5 billion in July from a EUR 4.8 billion shortfall recorded in June.
A leading indicator of the British economy increased in July, after falling in the previous months, as rising stock prices and consumer confidence offset continued pessimism from manufacturers, data from a survey by Conference Board showed Wednesday.
The leading economic index increased 0.1 percent month-on-month to 101.7, following a 0.4 percent fall in June and a 1 percent decline in May.
U.K. claimant count declined in August at the sharpest pace since June 2010 due to an increase in temporary hiring for the Olympics, data from the Office for National Statistics revealed Wednesday. The number of people claiming Jobseeker's Allowance dropped 15,000 in August from the prior month to 1.57 million. Economists had forecast the number to remain flat in August after falling 13,600 in July.
With fuel prices showing a notable rebound in the month of August, the Labor Department released a report on Wednesday showing that U.S. import prices rose for the first time in five months. The Labor Department said import prices rose by 0.7 percent in August following a revised 0.7 percent drop in July.
However, economists had expected import prices to surge up by 1.5 percent compared to the 0.6 percent decrease originally reported for the previous month.
Meanwhile, the Labor Department said U.S. export prices increased by more than expected during the month of August amid another notable increase in prices for agricultural exports. The report showed that export prices increased by 0.9 percent in August after rising by a revised 0.4 percent in the previous month. Export prices had been expected to rise by 0.5 percent, matching the increase originally reported for July.
U.S. wholesale inventories rebounded more than expected following an unexpected drop in June, although July wholesale sales continued to slow following a precipitous drop the previous month. According to figures released Wednesday by the Commerce Department, U.S. wholesale inventories were estimated at a seasonally adjusted level of $485.2 billion, up 0.7 percent from revised June levels.
That marks a stronger than expected rebound from the 0.2 percent drop in June inventories - a level that was essentially unrevised from initial reports, according to the Commerce Department. Most economists had predicted a smaller, 0.4 percent, increase in wholesale inventories for the month.
by RTT Staff Writer
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