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European Markets Fell Again On Concerns Over Cyprus

3/19/2013 1:00 PM ET

The European markets finished in negative territory again on Tuesday, adding to the losses from the previous session. Cyprus' Parliament will vote on the rescue package later today, after postponing it twice in the last two days. The government has declared a temporary bank holiday in Cyprus on March 19 and 20. Investors were hesitant to take positions ahead of the vote. They will also be watching for Wednesday's announcement from the FOMC meeting in the United States and the comments from Fed Chairman Ben Bernanke.

There were media reports just before the European close that the finance minister of Cyprus has resigned. There were also reports that the ruling party in Cyprus would abstain from the bailout vote.

Eurozone finance ministers late Monday agreed that small Cypriot depositors should be given greater protection, signaling some flexibility over a proposed bank tax. However, the ministers reiterated that Cyprus should still raise 5.8 billion euros from the levy as planned.

After a teleconference on Monday evening, Eurogroup President Jeroen Dijsselbloem said the ministers were of the view that "small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below EUR 100,000."

The proposal to make bank depositors in Cyprus to contribute to the planned bailout is likely to have drastic results, and could even threaten the stability of the Eurozone, economists at IHS Global Insight said.

According to the economists, with Cyprus' ruling party only enjoying a one-seat majority there is a strong possibility of the parliament rejecting the bank levy in its current form, while its structure is likely to change in order to garner parliamentary support.

If the planned measures are not approved by the parliament, the European Central Bank would close off its liquidity operations to Cypriot banks, and a default could lead to an exit by Cyprus from the Eurozone.

While the implementation of the plan is likely to have a detrimental impact on the future of Cyprus, there is also a potential for contagion from the move to impact bank sectors in other troubled economies on the periphery of the Eurozone. Also, it is likely that a mass of withdrawals from Eurozone periphery banks could heat up the debt crisis once again.

The depositors of Cypriot banks should contribute to the bailout fund through bank levy, German Finance Minister Wolfgang Schaeuble said in a radio interview. The burden of bailout should not fall on the shoulders of European taxpayers alone, he said. The German government supported so-called "bail-in" for Cyprus, with private depositors' participation.

Effective financial integration in essential to make Europe stronger and the European Central Bank (ECB) is committed to making it happen, at a time when the fragmentation of the financial market has led to the improper transmission of the monetary policy, ECB President Mario Draghi said Tuesday.

The impact of widespread fragmentation in the single financial market has resulted in the uneven transmission of the central bank's interest rate reductions to firms and households across the Eurozone, the policymaker said at a conference on financial market integration.

The Organization for Economic Cooperation and Development (OECD) on Tuesday slashed its growth forecast for the French economy and said the government must take strong measures to boost competitiveness and create jobs.

The gross domestic product is now projected to grow 0.1 percent this year after stagnating in 2012. The forecast is down from 0.3 percent growth predicted in November. The economy is expected to grow 1.3 percent in 2014.

The Euro Stoxx 50 index of eurozone bluechip stocks declined by 1.12 percent, while the Stoxx Europe 50 index, which includes some major U.K. companies, lost 0.24 percent.

The DAX of Germany dropped by 0.79 percent and the CAC 40 of France fell by 1.30 percent. The FTSE 100 of the U.K. decreased by 0.26 percent and the SMI of Switzerland finished down by 0.52 percent.

In Frankfurt, ThyssenKrupp declined by 5.63 percent. The steel maker is reportedly planning a capital increase.

Deutsche Bank fell by 4.20 percent and Commerzbank lost 0.50 percent.

BMW decreased by 1.51 percent. The carmaker said its outlook for 2013 is cautiously optimistic, and it targets a further rise in unit sales in the current year and hence a new sales volume record.

Department stores operator Metro climbed by 5.33 percent, after UBS upgraded the stock to ''Buy'' from ''Neutral.''

Deutz dropped by 5.81 percent, after announcing full year results.

Tom Tailor gained 8.83 percent, after reporting higher adjusted earnings for the year on strong sales growth.

GrenkeLeasing rose by 1.49 percent. Commerzbank upgraded the stock to ''Buy'' from ''Hold.''

In Paris, Credit Agricole declined by 5.66 percent. Societe Generale and BNP Paribas lost 3.92 percent and 4.20 percent respectively.

Iliad climbed by 5.21 percent, after reporting better than expected earnings.

In London, mining stocks are under pressure. BHP dropped by 3.53 percent and Rio Tinto decreased by 5.19 percent. Anglo American declined by 2.86 percent and Antofagasta lost 1.50 percent.

Deutsche Bank downgraded Fresnillo to ''Sell'' from ''Hold.'' The stock fell by 3.43 percent.

Evraz sank by 4.54 percent and Weir Group lost 4.36 percent. Berenberg downgraded its rating on Weir to ''Hold'' from ''Buy.''

Barclays declined by 2.76 percent and Royal Bank of Scotland finished down by 1.24 percent.

Arm Holdings, which announced a new chief executive, fell by 2.61 percent.

Cairn Energy declined by 3.73 percent, after it reported annual results.

J Sainsbury gained 1.70 percent, after reporting higher sales for the fourth quarter.

Eurozone construction output declined 1.4 percent in January from a month ago, when it was up 0.3 percent, Eurostat reported Tuesday.

New car registrations in the EU continued its downward trend in February, data published by the European Automobile Manufacturers' Association (ACEA) showed Tuesday. Total car registrations fell 10.5 percent year-on-year in February, faster than an 8.7 percent decline in January. In total, 795,482 new cars were registered during the month.

Germany's economic confidence unexpectedly improved for the fourth successive month in March to the highest level in three years, fueling hopes that the economy could get back on the growth path in the first quarter, despite widespread weakness in the Eurozone.

The indicator of economic expectations, which is designed to forecast economic developments six months in advance, rose to 48.5 points from 48.2 points in February, a survey by the Center for European Economic Research/ZEW showed Tuesday. The latest score was the best since April 2010. Economists had forecast the index to decline to 48.1 points.

Weighing on U.K. consumer spending, inflation rose to a 9-month high in February, further complicating the central bank's task of balancing inflation and growth. In addition, factory-gate inflation accelerated more than expected on fuel prices, underpinning the assessment that headline inflation will stay above the 2 percent target in months ahead.

Consumer price inflation rose marginally in February to 2.8 percent from 2.7 percent in January, data released by the Office for National Statistics showed Tuesday. The increase was in line with economists' expectations. On a monthly basis, consumer prices rose 0.7 percent, in line with forecast, but reversed January's 0.5 percent drop. Higher energy prices and the weak sterling pushed up inflation over recent months.

Residential property prices in the United Kingdom increased at a slower pace in January, and the rate of growth was below economists' forecast, latest data showed Tuesday. The house price index increased 2.2 percent on an annual basis in January, notably slower than the 3.3 percent gain seen in December, the Office for National Statistics said. Economists had forecast the growth rate to fall to 2.4 percent.

After reporting a sharp pullback in new residential construction for the month of January, the Commerce Department released a report on Tuesday showing a modest move back to the upside for U.S. housing starts in the month of February.

The report showed that housing starts edged up by 0.8 percent to a seasonally adjusted annual rate of 917,000 in February from the revised January estimate of 910,000. Economists had expected housing starts to climb to an annual rate of 915,000 from the 890,000 originally reported for the previous month.

Additionally, the Commerce Department said building permits, an indicator of future housing demand, jumped 4.6 percent to an annual rate of 946,000 in February from the revised January rate of 904,000. Economists had expected the annual rate of building permits to come in unchanged compared to the 925,000 originally reported for January.

by RTT Staff Writer

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