October 8, 2024

Stocks Up on U.S. Outlook, Crisis Checks Euro

European shares gained from the start on Tuesday, led by mining stocks after forecast-beating results from U.S. aluminum producer Alcoa improved the outlook for commodities.

“A good start to the earnings season; it shows the demand outlook is not so bad and we could get more positive surprises,” Mike Lenhoff, chief strategist and head of research at Brewin Dolphin Securities, said.

The key FTSEurofirst 300 index was up 1.3 percent at 1,021.47 points, while the STOXX Europe 600 euro zone banking index gained around 2.0 percent.

Nervous currency markets remained focused on the outlook for the euro zone economy, upcoming government debt sales and how the region’s banks will raise much needed capital to repair their balance sheets.

The euro rose slightly to trade around $1.2792, holding firmly above the 16-month lows of $1.2666 hit on Monday, due mainly to traders buying back the currency to square their positions after recent heavy selling.

The Bank of France focused attention on the ailing euro zone economy by reporting growth had stalled at zero in the fourth quarter of 2011 in the region’s second-biggest economy.

But separate data showed French industrial production rose 1.1 percent in November, bucking expectations for no growth as output from refineries rose from weak levels of a year ago during strikes.

“There’s short-covering and a bit of risk appetite with positive equity markets overnight,” said Niels Christensen, currency strategist at Nordea in Copenhagen.

“But we have the debt auctions, the ECB meeting on Thursday and it’s still a weak and vulnerable euro…, with no sign of a quick solution to the debt problems in the euro zone,” he said.

The worries about the health of the region’s banks saw commercial lenders’ overnight deposits held at the European Central Bank hit another record high of 482 billion euros.

The banks are awash with cash after taking an unprecedented 489 billion euros in the ECB’s first-ever three-year liquidity operation late last month, but they are still uncertain about what to do with the money in the longer term.

French banks were also likely to be in the spotlight after an internal memo obtained by Reuters on Monday showed Societe Generale is forecasting a sharp drop in investment bank revenue in 2012, weighed by higher funding costs and efforts to slash its balance sheet.

AUSTRIAN EXPOSURE

Earlier, data showed China’s exports and imports grew at their slowest pace in more than two years in December. The figures fuelled expectations of more policy action from Beijing to support the world’s second biggest economy, and most Asian markets gained on Tuesday.

Wall Street ended slightly higher on Monday in a light-volume session as investors stayed cautious ahead of the earnings season that kicked off with Alcoa.

Tuesday’s focus in euro zone debt markets will mainly be on Austria’s auction of 1.3 billion euros of 10-year bonds which should give an indication of how worried investors are about the country’s exposure to neighboring Hungary, which is locked in a dispute with the IMF over international aid.

Bund futures were slightly lower in midmorning trade.

Elsewhere, British retailers finished 2011 with the best sales growth in months as hefty discounting lured in shoppers, while weak business a year earlier flattered the figures, the British Retail Consortium said on Tuesday.

It added that it expected another tough year.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

The euro zone crisis: http://r.reuters.com/xyt94s

China imports and exports: http://link.reuters.com/ked55s

Euro zone bond yields: http://r.reuters.com/hyb65p

BRC UK retail sales http://link.reuters.com/vyv85s

ECB bank borrowing, deposits http://link.reuters.com/nyd85s

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

(Additional reporting by Joanne Frearson and Jessica Mortimer; Editing by John Stonestreet)

Article source: http://www.nytimes.com/reuters/2012/01/10/business/business-us-markets-global.html?partner=rss&emc=rss

Stocks & Bonds: Market Anxiety Grows Over Italy

That cost — extracted by financial markets increasingly doubtful about Italy’s ability to repay its loans — shows just how hard it is for indebted European countries to escape their raging financial crisis. Even as they frantically cut back their debt mountains through austerity measures, the debt servicing costs are piling up.

In Italy’s case, the extra bond yields are adding as much as 3 billion euros (about $4.1 billion) in additional interest payments annually, estimates Tobias Blattner, a former economist at the European Central Bank who is an economist at Daiwa Securities in London.

“That is a lot of money for someone trying to cut their debt,” he said. “Each day the situation deteriorates and you have to go back for more austerity measures to match them.”

The interest rates on Italian debt fell back on Thursday after Greece called off its proposed referendum on the terms of its planned bailout, and the European Central Bank cut interest rates, announcements that cheered financial markets across Europe and the United States.

The Euro Stoxx 50 index, a barometer of euro zone blue chips, closed up 2.5 percent. The German DAX was up 2.8 percent and the CAC 40 in Paris rose 2.7 percent. The FTSE 100 index in London rose 1.1 percent.

The Standard Poor’s 500-stock index was up 1.9 percent, or 23.25 points, at 1,261.15. and the Dow Jones industrial average gained 1.8 percent, or 208.43 points at 12,044.47. The Nasdaq rose 2.2 percent to 2,697.97.

Energy, industrials, technology and materials each rose about 2 percent, while financial stocks were up 1.12 percent.

The latest developments in Greece were seen as supportive for stocks, but “the big thing was the European rate cut and that is what is driving the market,” said Doug Cote, chief strategist at ING Investment Management. “Investors are going to start nibbling around and going back to risk.”  

The Italian 10-year yield — rising to 6.352 percent on Thursday before falling back to 6.167 percent — remains uncomfortably high, and could move higher again, analysts said. Facing a confidence vote on Friday, the Greek government may still be forced to call for a new election. That would again call into question the entire rescue package for indebted European countries that was agreed to last week at a summit meeting in Brussels.

Prime Minister George A. Papandreou of Greece “still has to face the confidence vote,” said Win Thin, currency strategist at Brown Brothers Harriman in New York. “If he passes, he could still reintroduce the referendum. If he does not pass it, then the opposition is not happy about the current deal. It gets politically messy.”

Italian bond yields were generally rising even before last week’s Brussels deal, suggesting that markets felt the evolving plan was not sufficient to tackle its problems. The European Central Bank has been regularly buying Italian bonds in the open markets to try to keep yields down, but many analysts say they think it will have to buy bonds on a much larger scale to force yields meaningfully lower or even just to stop the creep higher.

Some analysts say Italian bond yields may now be reaching worrying heights. “Six percent is a light flashing,” said Mr. Thin. “For Greece, Ireland and Portugal, when it went to 7 percent that was a red light, and the yield never came back down below that.”

Those countries were no longer able to afford the high market interest rates and had to turn to official lending by the European Union and the International Monetary Fund for financing. The high yields — and widening gaps in yields between countries — complicate monetary policy. Even though the European Central Bank cut short-term rates by a quarter point to 1.25 percent on Thursday to lift growth, the policy’s effect will be muted if at the same time long-term bond yields are moving higher.

Christine Hauser contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=ac00a5af3ea2726193ac780b93c579ee