Friday, Aug 17, 2012
-- Merkel comments underpin sentiment
-- Still, Spanish banks' bad debts at record levels
-- U.S. economic data eyed for direction
By Nina Bains and Michele Maatouk
European stocks maintained gains and the euro nudged a little higher against the dollar Friday, on continued hopes that European leaders will stand by the euro project.
German Chancellor Angela Merkel's comments Thursday that Germany is committed to do what it can to maintain the euro helped to buoy sentiment, lending further weight to European Central Bank President Mario Draghi's endorsement of the euro on July 26. Mr. Draghi said that the ECB will take any steps within its mandate to preserve the common currency. Since then he has also signalled that the central bank may soon step in to buy government bonds and consider other unconventional measures to help support financially stressed regions like Spain and Italy.
Unsurprisingly, gains in equity markets were most strongly felt in Spain and Italy. Spain's IBEX 35 was up 1.7% 7540.50, while Italy's FTSE Mib gained 1.5% at 15,160.72. Both continued to trade at around four-month highs. Meanwhile, bond yields in southern European economies also eased. By 0935 GMT Spain's 10-year government bond had fallen further, down by 10 basis points at 6.42%, while Italy's respective government bond yield was two basis points lower at 5.76%, according to Tradeweb.
Financial markets shrugged off news that bad debts held by Spanish banks had surged to record highs, and instead focused on continued expectations of ECB intervention. Data showed that non-performing loans grew by 8.39 billion euros ($10.36 billion) in the month of June, to EUR164.36 billion, or 9.42% of total outstanding loans compared with 8.95% in May.
Still, Spain may be unwilling to request financial aid for now, given the stigma attached to it.
"A very political form of bond-buying is in the works which may well pass muster with Berlin, but is viewed with deep suspicion in Madrid where 'conditionality creep' set in some time ago," said Dr Nicholas Spiro, managing director of Spiro Sovereign Strategy. "Rome, for its part, is just hoping that bond-buying in Spain will be sufficient to bring down Italian spreads," he added.
At 1000 GMT, the benchmark Stoxx 600 index was up 0.3% at 271.97, after closing at a five-month high on Thursday. The U.K.'s FTSE 100 was up 0.2% at 5844.74, Germany's DAX was 0.2% higher at 7008.77 and France's CAC-40 was up 0.2% at 3486.54. Autos and banks were the best performers, with the Stoxx Europe 600 index for each up 1.2% and 1.1%, respectively. Technology stocks were also on the front foot, with the sector's index up 1.0%, supported by better-than-expected fourth-quarter results from U.S. bellwether Cisco.
Finland's stance toward the euro had little impact on stocks. Finland's Minister for European Union Affairs Alexander Stubb said his country remains totally committed to the euro zone after the U.K.'s Daily Telegraph ran a story saying Finland was preparing for a possible breakup of the currency bloc, according to the country's foreign minister.
On the corporate front, Lonmin was down 1.2%, after having been off by as much as 6.1% in London following news that over 30 miners have been killed at the company's Marikana mine in Rustenberg, South Africa, after recent clashes between police and striking miners. Lonmin said it has lost 300,000 tons of ore as a result and is unlikely to meet its full-year guidance.
"We continue to hold fears over Lonmin's balance sheet," said Credit Suisse. It added that the stock is now a pure play on the platinum price and it continues to remain cautious over the next six months despite the industry volume cuts seen to date. Fears of supply contraints in the platinum market pushed the spot price for the precious metal up by 2.6% to $1457.00 an ounce.
In foreign exchanges, the euro spiked back to a session high of $1.2375, but was trading in a tight range and soon settled again to trade at $1.2364 from $1.2358. The dollar was at Y79.46 from Y79.34.
On Friday's economic calendar, the main focus will be on the U.S., where University of Michigan confidence is at 1355 GMT and leading indicators are at 1400 GMT.
At 1000 GMT the DJIA front month futures contract was flat at 13,223.00, while S&P 500 front month futures contract was down 0.1% lower at 1412.20.
September Nymex crude oil futures were down $0.45 at $95.15 a barrel and the October Brent oil contract was down $1.40 at $113.87. Spot gold was at $1,616.70, up $2.40 while the September Bund contract was down 18 ticks at 141.60.
Write to Nina Bains at nina.bains@dowjones.com
(END) Dow Jones Newswires
August 17, 2012 06:44 ET (10:44 GMT)