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European Markets Pulled Back On Fiscal Cliff Concerns

12/13/2012 12:01 PM ET

The European markets finished in the red on Thursday, as concerns over the looming fiscal cliff in the United States dominated trade. Comments made by Fed Chairman Ben Bernanke at the conclusion of the FOMC's 2-day meeting yesterday raised concerns regarding the potential damage that the stalemate over the issue is causing.

The U.S. Federal Reserve, at the end of the two-day meeting on Wednesday, said it would replace its "Operation Twist" program, which expires at the end of the year, with the purchase of longer-term Treasury securities at a pace of $45 billion per month. The central bank also said it would continue to purchase additional agency mortgage-backed securities at a pace of $40 billion per month.

In a departure from its earlier pledge to keep interest rates at historically low levels until mid-2015, the Fed will hold off on rate hikes until the unemployment rate falls to 6.5 percent. Policy makers do not see the unemployment rate falling to 6.5 percent until 2015.

Fed Chairman Ben Bernanke warned that Fed support cannot fully offset the downside risks presented by the so-called fiscal cliff. Bernanke expects Congress to reach a deal, but noted that inaction has already resulted in a troubling drop in business confidence.

Finance ministers from the 27 European Union states on Thursday finalized an agreement, giving the European Central Bank more powers to oversee the functioning of banks in the crisis-hit region. The decision came ahead of the two-day EU summit in Brussels starting today.

The ministers plan to make the supervisory system fully operational by March 2014 or 12 months after the entry into force of the legislation, whichever is later, according to statement issued after the meeting.

The Single Supervisory Mechanism (SSM) will be composed of the ECB and national competent authorities. As the chief watchdog, the ECB will be responsible for the overall functioning of the SSM and will have direct oversight of Eurozone banks, but "in a differentiated way and in close cooperation with national supervisory authorities," the ministers said in the statement.

Eurozone finance ministers, collectively known as the Eurogroup, finally approved the release of a second disbursement of bailout funds to Greece on the completion of the government's debt buyback operation.

At its meeting in Brussels on Thursday, Eurogroup authorized the bailout fund, the European Financial Stability Facility (EFSF), to release the next installment for a total amount of EUR 49.1 billion. The disbursement will be made in several tranches.

Greece will receive EUR 34.3 billion in the following days. The remaining amount will be disbursed in the first quarter of 2013.

Ernst & Young on Thursday said the euro area will enter 2013 with a brighter outlook than twelve months ago. The region is painfully progressing to stability, E&Y commented.

According to E&Y Eurozone Forecast, or EEF, the region will shrink 0.2 percent next year, but there will be a modest pickup from 2014 to 2016 of 1.3 percent a year. Similar growth rates are expected for the remainder of the decade.

The Euro Stoxx 50 index of eurozone bluechip stocks declined by 0.27 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, lost 0.44 percent.

The DAX of Germany fell by 0.43 percent and the CAC 40 of France decreased by 0.10 percent. The FTSE 100 of the U.K. dropped by 0.27 percent and the SMI of Switzerland finished lower by 0.57 percent.

In Frankfurt, RWE declined by 2.68 percent and peer E.ON lost 0.63 percent. Both stocks received negative broker recommendations.

ThyssenKrupp fell by 1.21 percent, after Moody's placed it on review for a downgrade.

Commerzbank and Deutsche Bank decreased by 0.35 percent and 2.71 percent, respectively.

ProSiebenSat dropped by 2.75 percent, after Commerzbank downgraded its rating on the stock.

Delticom retreated by 6.96 percent after a broker downgrade. Bucking the trend, Hochtief climbed by 2.09 percent, after Berenberg upgraded the stock.

In Paris, GDF Suez fell by 0.71 percent. Nomura downgraded the stock to ''Neutral'' from ''Buy.''

Renault climbed by 1.49 percent. The car maker sold its remaining 6.5 percent stake in Swedish automaker AB Volvo for 12.78 billion Swedish kroner or about $1.92 billion.

Dairy giant Danone is preparing a cost reduction and adaptation plan. It will be deployed over two years and is targeted at adjusting costs to generate savings of some 200 million euros in Europe. The stock increased by 0.75 percent.

In London, BG Group declined by 1.97 percent. The oil and gas explorer appointed Chris Finlayson, currently Executive Director and Managing Director of BG Advance, as chief executive officer of the company, succeeding ailing Frank Chapman.

Tullow Oil gained 2.88 percent, after Goldman Sachs upgraded the stock to "Buy" from "Neutral."

AstraZeneca finished lower by 2.76 percent. The company announced that its oral treatment for rheumatoid arthritis, fostamatinib, failed to meet one of the main objectives in a drug trial.

Energy services company John Wood Group said conditions in energy markets remain favorable and that it expects to deliver good growth for 2012 in line with expectations. In the Canadian oil sands market, the company anticipates some reduction in activity in 2013. The stock fell by 4.55 percent.

Sports Direct International dropped by 5.64 percent. The company reported a higher profit for its first half, but has decided not to pay a dividend in respect of the half-year.

Centamin has received a $65 million claim from the Egyptian General Petroleum Corp. for diesel fuel supplied from December 2009 to January 2012. The company said its mine will be put on care and maintenance until the issues are satisfactorily resolved. The stock sank by 47.44 percent.

Deutsche Bank upgraded HSBC to ''Buy'' from ''Hold.'' The stock finished down by 0.06 percent.

Nestle fell by 0.33 percent in Zurich. The stock was upgraded to ''Overweight'' from ''Equalweight'' at Barclays.

Retail sales in the U.S. rose by less than expected in the month of November, according to a report released by the Commerce Department on Thursday, with a sharp drop in sales by gas stations partly offsetting strength in other sectors.

The Commerce Department said retail sales increased by 0.3 percent in November following a 0.3 percent decrease in October. Economists had been expecting retail sales to increase by about 0.6 percent.

First-time claims for U.S. unemployment benefits unexpectedly showed a notable decrease in the week ended December 8th, according to a report released by the Labor Department on Thursday.

The report showed that initial jobless claims fell to 343,000, a decrease of 29,000 from the previous week's revised figure of 372,000. Economists had expected jobless claims to come in unchanged compared to the 370,000 originally reported for the previous week.

With wholesale energy prices showing a sharp drop in the month of November, the Labor Department released a report on Thursday showing that producer prices for the month fell by more than economists had anticipated.

The report showed that the Labor Department's producer price index fell by 0.8 percent in November following a 0.2 percent drop in October. Economists had been expecting prices to fall by about 0.5 percent.

Business inventories in the U.S. increased in line with economist estimates in the month of October, according to a report released by the Commerce Department on Thursday, although the report also showed a drop in business sales.

The report showed that business inventories rose by 0.4 percent in October following a 0.7 percent increase in September. The increase in inventories matched the expectations of economists.

by RTT Staff Writer

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