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Europe midday: Stocks cut back on gains

Date: Monday 11 Jun 2012

Europe midday: Stocks cut back on gains

-Recourse to ESM would trigger Spanish CDS contracts -IFR
-Finland will ask for collateral if Spain funds come from EFSF
-Moody´s says events in Spain and Greece may prompt downgrades
-Goldman lowers 3 month price forecasts for industrial metals
-Yield on Spain´s 10 year bond up 21 bp to 6.42%

FTSE-100: 0.35%
Dax-30: 1.29%
Cac-40: 0.99%
Stoxx 600: 0.83%
Ibex 35: 1.52%

The main European equity benchmarks are cutting their gains, as some investors begin to ‘poke holes’ in the rescue agreement agreed with Spain over the weekend and as Spanish debt turns down.

Thus, whereas analysts from Goldman Sachs, Barclays, Fitch and Unicredit are reacting positively to the agreement to different degrees, others are not so sure. Such is the case of analysts at IFR, according to whom recourse to the European Stability Mechanism (ESM) would trigger the CDS contracts on Spanish bonds as it is not voluntary.

On Saturday Spain´s Economics Minister received a pledge from his Eurozone partners for a credit line of up to €100bn for his country´s banks, who under a ‘base scenario’ are thought by the International Monetary Fund to need approximately €40bn. Nonetheless, there are still important details to be disclosed, such as the interest rate that will be applied (some reports hold that it will be below market levels) and the ´seniority´ of the debt to be issued.

Yet one of the most important variables seems to be out of anyone´s control in the very short-term (bar massive intervention by authorities); we are speaking of markets´ reaction to the announcement. On a more positive note, the apparently generous terms of the credit line are thought by some to constitute a first step towards a ‘financial union’; precisely one of the things markets most want to see.

Other nagging worries for markets



Acting as a backdrop however, one cannot lose sight of the Greek elections scheduled for the next 17th of June, which have led to heightened tensions. Also worth noting, economic data out over the weekend in China is being described as weak. In fact, there has been quite a lot of market commentary over the weekend and today regarding the slowing seen recently in emerging markets' growth.

From a sector stand-point, and on the DJ Stoxx 600, the best performance is now to be seen in the following sectors: automobiles (1.80%), basic resources (1.46%) and industrial goods and services (1.44%).

Better than expected data in Europe



French industrial production rose 1.5% month-on-month in April (Consensus: -0.1%).

Italian gross domestic product contracted by 0.8% quarter-on-quarter in quarter one, as expected.

Euro nudges slightly above 1.26



The euro/dollar cross has nudged slightly above the 1.26 dollar mark.

Front month Brent crude futures are now 1.133 higher at 100.64 dollars in ICE trading.

AB


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