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European Markets Finished Mostly Lower After Central Bank Decisions

1/10/2013 12:01 PM ET

The majority of the European markets ended Thursday's session in negative territory. The strong Chinese export data had provided a boost in early trade, but the markets struggled to find direction following the decisions of both the ECB and the BoE to maintain their respective interest rates. Comments from ECB President Mario Draghi dashed hopes for rate cuts in the near future. Investors were also disappointed by the unexpected increase in U.S. weekly jobless claims.

The European Central Bank left the key interest rates unchanged at a record low at the first rate-setting session of the year as the bank shifts its focus to underpinning the fragile economy amid some feeble signs of stabilization.

The central bank of 17 nations maintained the refinancing rate at 0.75 percent for a sixth consecutive month in January, following the Governing Council meeting in Frankfurt on Thursday. The decision was in line with economists' expectations.

European Central Bank President Mario Draghi said on Thursday that the euro area may see a gradual recovery later in the year as there are some modest signs of stabilization. While speaking at the post-decision press conference in Frankfurt, Draghi said, "More recently several conjunctural indicators have broadly stabilized, albeit at low levels, and financial market confidence has improved significantly."

"Later in 2013 a gradual recovery should start," he added. In order to sustain confidence, it is essential for governments to reduce further both fiscal and structural imbalances and to proceed with financial sector restructuring, Draghi said.

The Bank of England kept its quantitative easing intact at the start of the year, as policymakers see little compelling case for another stimulus in the face of improving lending conditions.

Following its two-day meeting, the Monetary Policy Committee headed by Mervyn King left the size of its bond buying program unchanged at GBP 375 billion and the interest rates at record low 0.50 percent on Thursday.

The U.K. statistical authorities said the current calculation of the Retail Price Index should be continued without major changes so that it would not affect payments on inflation-linked bonds.

Jil Matheson, the National Statistician on Thursday said the RPI has significant value to index-linked bond holders. So the statistician recommended formulae used for the RPI should be kept unchanged and to develop a separate monthly inflation index called RPI-J to meet international standards.

France's central bank said Thursday that the gross domestic product probably declined 0.1 percent in the fourth quarter of 2012, an assessment unchanged from its previous estimate.

At the same time, data from the statistical office Insee indicated that there was some signs of recovery in the industrial sector as output rebounded in November from the previous month.

Spain had a successful start to its 2013 funding, with the country's first debt sale of the year on Thursday exceeding the maximum target. The country raised EUR 5.8 billion from the sale of its three bonds which included a new two-year bond. The treasury had targeted proceeds between EUR 4 billion and EUR 5 billion.

The 2.75 percent March 2015 bond fetched a yield of 2.476 percent, while the yield for the five-year bond due in January 2018 fell to 3.988 percent from 4.680 percent at a previous sale on November 8. A long-term bond due July 2026 with a coupon of 5.90 percent fetched a yield of 5.555 percent.

The Euro Stoxx 50 index of eurozone bluechip stocks gained 0.01 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, lost 0.39 percent.

The DAX of Germany fell by 0.20 percent and the CAC 40 of France dropped by 0.39 percent. The FTSE 100 of the U.K. decreased by 0.01 percent and the SMI of Switzerland finished down by 0.12 percent.

In Frankfurt, Deutsche Bank and Commerzbank rose by 2.92 percent and 1.06 percent, respectively.

Volkswagen finished up by 1.17 percent. The car maker, which already holds 75.03 percent of the voting rights in MAN, is planning to buy the rest of the shares that it does not known in the truck maker. Man is gaining 4.7 percent.

BMW gained 0.98 percent and Daimler added 0.41 percent.

Barclays downgraded its rating on RWE to "Underweight" from "Equalweight," but lifted E.ON to ''Equalweight'' from ''Underweight.'' E.ON fell by 0.52 percent, while RWE lost 2.11 percent.

Dialog Semiconductor, which lifted its revenue forecast, advanced by 5.89 percent.

Sugar firm Suedzucker reported higher profit and revenue for the third quarter and backed its full year profit and revenue forecast. The stock declined by 5.85 percent.

In Paris, Societe Generale climbed by 1.77 percent and Credit Agricole added 2.09 percent. BNP Paribas, however, decreased by 0.13 percent.

GDF Suez dropped by 2.02 percent, after JPMorgan downgraded the stock to ''Underweight'' from ''Neutral.''

Alstom increased by 3.52 percent, after Citigroup upgraded the stock to "Buy" from "Neutral."

In London, Bunzl rose by 3.35 percent, after announcing new acquisitions.

Tesco, which reported growth in Holiday sales, advanced by 1.79 percent.

Arm Holdings gained 4.23 percent, after Dialog Semiconductor in Germany raised their revenue forecast.

Standard Chartered climbed by 0.63 percent, after Societe Generale upgraded its rating on the stock to "Buy" from "Hold."

Marks & Spencer fell by 0.81 percent. The retailer reported a 0.6 percent rise in sales for the 13-week period ended December 29, 2012, adding that it expects the pressure on consumers' disposable incomes to continue in 2013, and remains cautious about the outlook for the year ahead.

SIG surged by 6.61 percent. The building products supplier expects to make further progress in 2013.

China's exports advanced more than expected in December, boosting hopes of a rebound in growth for the world's second largest economy.

Overseas shipments surged 14.1 percent year-on-year in December, the fastest pace in seven months, data released by the General Administration of Customs showed Thursday. The outcome was much stronger than the 5 percent increase forecast by economists.

The trade surplus jumped to $31.6 billion in December from $19.6 billion in November. Economists expected only a modest improvement to $20 billion.

France's EU harmonized inflation weakened to the lowest level in thirty-four months in December, data released by statistical office Insee showed Thursday.

Inflation as per the harmonized index of consumer prices (HICP) eased to 1.5 percent in December from 1.6 percent in November, in line with market expectations. The latest figure was the lowest since February 2010, when prices moved up 1.4 percent.

On a monthly basis, the HICP increased 0.4 percent in December, which was in line with economists' expectations. In November, prices had decreased 0.2 percent month-on-month.

Construction activity in the U.K. will likely improve in 2013, and the sector is set to recover from last year's slump which was marked by tough conditions, the latest construction market survey by the Royal Institution of Chartered Surveyors (RICS) showed Thursday.

With the data for the previous week downwardly revised, the Labor Department released a report on Thursday showing that first-time claims for U.S. unemployment benefits saw a modest increase in the week ended January 5th.

The report showed that initial jobless claims rose to 371,000, an increase of 4,000 from the previous week's revised figure of 367,000. Economists had expected jobless claims to drop to 362,000 from the 372,000 originally reported for the previous week.

Wholesale inventories in the U.S. increased by more than anticipated in the month of November, according to a report released by the Commerce Department on Thursday, with the report also showing a substantial rebound by wholesale sales.

The report showed that wholesale inventories increased by 0.6 percent in November compared to economist estimates for a 0.3 percent increase. However, the Commerce Department also said that the increase in inventories in October was downwardly revised to 0.3 percent from 0.6 percent.

by RTT Staff Writer

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