Tuesday, Jun 19, 2012
By Michele Maatouk and Sara Sjolin
A Spanish debt auction that yielded results deemed slightly better than expected drove a stocks rally in Madrid and delivered relief more broadly for European markets Tuesday.
European stocks rose Tuesday and Spanish government bond yields eased off highs despite a distinct lack of good news, with investors betting on further monetary stimulus by central banks as they await the formation of a coalition in Greece.
(This story and related background material will be available on The Wall Street Journal website, WSJ.com.)
The Stoxx Europe 600 index closed up 1.6% at 248.27. The U.K.'s FTSE 100 finished 1.7% higher at 5586.31, Germany's DAX ended up 1.8% at 6363.36 and France's CAC-40 rose 1.7% to 3117.92.
Elsewhere, Spain's IBEX-35 closed up 2.7% at 6693.90, Italy's FTSE Mib added 3.4% to 13,445.46 and Greece's ASE gained 3.3% at 600.07.
It was a decidedly calmer picture in Spanish bond markets. The yield on the 10-year government bond fell just below the critical 7% level to 6.99%, according to Tradeweb, well off the euro-era high of 7.17% reached Monday.
Spain's auction of 12- and 18-month Treasury bills saw good demand, just above the top targeted amount of EUR3 billion. However, the government had to pay high rates amid growing concern that Spain's bank rescue may be followed by a full-blown sovereign bailout.
"We got a relatively high interest rate, but raised the maximum target and that has given the market cheer," said Predrag Dukic, senior equity sales trader at CM Capital Markets in Madrid.
On Thursday, Spain will attempt to sell between EUR1 billion and EUR2 billion of bonds with maturities in 2014, 2015 and 2017.
Spanish bank shares recovered from pressure that followed the central bank's confirmation that a banking audit would be delayed until September. Banco Bilbao Vizcaya Argentaria gained 2.6% and Banco Santander added 2.8%.
More broadly, expectations of more economic stimulus in Europe and the U.S. drove sentiment Tuesday, boosted by a weak reading from the German ZEW survey. The economic-expectations index fell to minus-16.9 in June from 10.8 in May, against expectations for a reading of 2.8. The current-conditions index also fell short of expectations.
Newedge said that "the data, coupled with signs of increasing distress for euro-zone companies, point to risks of a deeper-than-expected recession." The ECB should reconsider its wait-and-see approach and act on its policy mix soon, it said.
U.K. inflation data added weight to the argument for more easing. The consumer-price index rose 2.8% on the year in May, compared with expectations for it to remain at 3%, fueling hopes that the Bank of England will make the case for further monetary stimulus at its July 5 meeting.
At the same time, the U.S. Federal Reserve's Open Market Committee began a two-day rate-setting meeting. Goldman Sachs said it expects the FOMC to ease monetary policy in response to weaker economic reports and increased downside risks from the intensifying crisis in Europe.
Stimulus hopes helped to prop up the euro against the dollar, with traders also pointing to unsubstantiated chatter that the ECB was buying Spanish bonds Tuesday. By the time of the European markets' close, the single currency was fetching $1.2689 from $1.2575 late Monday in New York, while the dollar was trading at 78.98 yen from Y79.11.
In corporate news, Home Retail Group surged 24% after the U.K. general-merchandise retailer affirmed its outlook for full-year profit.
Drug makers were also trading higher. Roche Holding rose 3.2%, while Sanofi added 2.5% and Novartis gained 1.4%.
Bucking the trend, France's Danone lowered its 2012 targets as demand in Europe, particularly in Spain, dropped faster than expected in the second quarter. Its shares dropped 6%, while Unilever fell 0.6%
Private investment bank Julius Baer added 2.2% after confirming it is in talks with Bank of America about acquiring the Merrill Lynch international wealth-management business.
Iberdrola rallied 4.8% as Goldman Sachs lifted the Spanish utility firm to "buy" from "neutral."
Energy shares did the heavy lifting in London as crude oil rose above $84 a barrel. BG Group rallied 4.3%, Royal Dutch Shell added 1.5% and BP climbed 1.5%.
Light, sweet crude for July delivery was up 78 cents at $84.05 in midday trading on the New York Mercantile Exchange, while Comex Gold for June delivery was down $2.90 at $1,622.80.
Write to Michele Maatouk at email@example.com and Sara Sjolin at firstname.lastname@example.org
(END) Dow Jones Newswires
June 19, 2012 13:26 ET (17:26 GMT)