European Stocks Drop on Greek Deadlock, Merkel’s Setback
European stocks retreated as Greece moved closer to a possible exit from the euro currency union and German Chancellor Angela Merkel’s party lost a state election.
Banks paced losses, with HSBC Holdings Plc (HSBA) dropping 2 percent. Infineon Technologies AG (IFX), Europe’s second-largest semiconductor maker, retreated after Chief Executive Officer Peter Bauer decided to step down. ING Groep NV (INGA) tumbled 6 percent as European Union regulators will reexamine its rescue by the Dutch government.
The Stoxx Europe 600 Index lost 2.3 percent to 246.22 at 3:13 p.m. in London. All 19 industry groups on the gauge fell. The Stoxx 600 has reached within 0.7 percent of erasing this year’s gain as an inconclusive election in Greece left political parties struggling to form a government, risking the collapse of proposed austerity measures.
“With no new Greek government in sight, I think that we will see continued insecurity and volatility in financial markets this week,” said Alessandro Fezzi, senior market analyst at LGT Capital Management AG in Pfaeffikon, Switzerland. The impasse “will lead us to new elections in June, which will prolong investors’ insecurity as they worry about possible contagion risks, especially regarding Spain.”
A European (SXXP) measure of implied volatility increased the most in three weeks. The VStoxx Index, a measure of Euro Stoxx 50 Index options prices, surged 13 percent to 32.09, its biggest jump since April 23.
Lack of Consensus
Greece’s President, Karolos Papoulias, failed to secure agreement on a unity government and avert new elections. Syriza, the left-wing group opposed to spending cuts, defied overtures to join the government yesterday.
Euro-area finance ministers meet today and may discuss the international bailout for Greece, as well as the situation in Spain, where the government last week began a fourth attempt to clean up the country’s banks. The ministers will convene at 5 p.m. in Brussels.
Meanwhile, the debate between growth and austerity will form the centerpiece of talks tomorrow between the newly installed French President Francois Hollande and Merkel, who has championed an agenda of spending cuts.
National benchmark indexes fell in all of the 18 western- European markets. The U.K.’s FTSE 100 declined 2.4 percent. France’s CAC 40 lost 2.7 percent. Germany’s DAX advanced dropped 2.5 percent. Greece’s ASE Index plunged 4.6 percent to the lowest level since November 1992.
Merkel’s party lost an election in Germany’s most populous state, helping the Social Democrats tighten their grip on the country’s regional governments.
The SPD, the main opposition party nationally, increased its share of the vote in yesterday’s ballot in North Rhine- Westphalia. Support for Merkel’s Christian Democratic Union fell to its lowest level since World War II.
Euro-area industrial production unexpectedly declined in March, as lower output in countries from Spain to France offset increased activity in Germany. Production slipped 0.3 percent from February. Economists had forecast a gain of 0.4 percent. From a year earlier, production declined 2.2 percent.
Spain’s borrowing costs rose at a bill auction. The nation sold 2.9 billion euros ($3.7 billion) of bills, just below its maximum target, and offered the most since December to lure investors as demand eased.
Italy auctioned 5.25 billion euros of debt as the Treasury reached the maximum set for the sale amid stronger demand.
A gauge of European banking shares was among the worst performers of the 19 industry groups in the Stoxx 600. HSBC tumbled 2 percent to 543.3 pence. Deutsche Bank AG (DBK) and BNP Paribas SA (BNP) dropped 4.3 percent to 29.82 euros and 4 percent to 27.52 euros, respectively.
Bankia SA (BKIA) plunged 8.8 percent to 1.89 euros after the Spanish lender said provisions for soured property loans will be 115 times last year’s earnings.
Natixis (KN) SA retreated 5.7 percent to 2.02 euros after Sebastien Lemaire, an analyst at Societe Generale SA, reduced his recommendation on the stock to hold from buy.
Infineon dropped 3.7 percent to 6.64 euros after it said Bauer will step down because of “severely worsening” osteoporosis and named management-board member Reinhard Ploss as his successor from Oct. 1.
ING Groep, Nokia
ING Groep, the biggest Dutch financial service company, fell 6 percent to 4.91 euros after a weekend report said its rescue by the country’s government will be re-examined by EU competition regulators after a court overturned earlier approval of the aid.
Lonmin Plc (LMI), the world’s third-largest platinum producer, slumped 4.4 percent to 860.5 pence after posting an unexpected first-half loss. The loss excluding one-time items was 6.9 cents a share in the six months through March. That compares with the median estimate for profit of 9 cents.
Chariot Oil & Gas Ltd. (CHAR) plunged 48 percent to 77.5 pence, its biggest decline since it sold shares to the public in May 2008, after failing to find hydrocarbons at the Tapir South exploration well offshore Namibia and abandoning the block.
Opap SA (OPAP), the Greek gambling company, tumbled 13 percent to 5.10 euros, the lowest price since 2001, after Imerisia reported that the company’s agents have asked for a 30 percent commission on gross winnings from planned video lottery terminal games.
Invensys, Rank Group
Invensys Plc (ISYS), the British maker of controls for washing machines and factory equipment, advanced 4.5 percent to 211.6 pence after the Sunday Times said the company is the target for potential bids from industrial groups including Siemens AG, ABB Ltd., Emerson Electric Co. and General Electric Co. The newspaper didn’t say where it obtained the information.
Rank Group Plc (RNK), the U.K. casino and bingo company, rose 4.7 percent to 122.2 pence after it conditionally agreed to buy the casino unit of Gala Coral Group Ltd. for 205 million pounds ($329 million).
C&C Group Plc (GCC), the maker of Mangers cider and Tennents lager, climbed 1.1 percent to 3.61 euros after the Irish Independent reported that SABMiller Plc and Carlsberg A/S have been examining a bid for the company since the start of the year. The newspaper cited “informed sources.”
Spain’s borrowing costs rose at a bill auction and an Italian debt sale failed to assuage concern that the escalation of the Greek crisis risks overwhelming its Mediterranean neighbors.
Spain sold 2.9 billion euros ($3.7 billion) of bills, just below its maximum target, and offered the most since December to lure investors as demand eased. Italy auctioned 5.25 billion euros of debt, including its first bond of more than 10 years in seven months, as the Treasury reached the maximum set for the sale amid stronger demand.
panish bond yields rose to the most since December after Prime Minister Mariano Rajoy’s government said it may inject public funds into struggling lenders and data showed banks’ borrowings from the European Central Bank surged to a record 264 billion euros. As Greeceentered a second week of political deadlock, expectations grew that the country may leave the euro, adding to the risk of contagion for Italy and Spain.
“It’s turning into a perfect storm: a loss of confidence in the Rajoy government’s ability to stop the rot and, perhaps more worryingly, renewed fears of a disorderly Greek exit from the euro zone,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy. “Differentiation between Italy and Spain is becoming less pronounced as the Greek crisis escalates.”
Spanish 10-year bond yields rose to 6.29 percent after the auction from 6.219 percent before the sale, an increase of 33 basis points from the previous close on May 11. Italy’s 10-year yield jumped 28 basis points to 5.75 percent, the highest since Feb. 16 even with demand rising at the bond sale.
Investors asked for 1.52 times the amount of three-year bonds on offer today, up from 1.43 times last month. The bid to cover on the Italian 10-year bond sold today was 2.27 times, while investors asked for 1.93 times the 2025 bond, the first time the Treasury sold the bond since October.
Spain sold 12-month bills at an average rate of 2.985 percent, compared with 2.623 percent on April 17, the Madrid- based Bank of Spain said. By contrast, AAA-rated Germany sold 3.3 billion euros of six-month bills at a rate of 0.0371 percent and Finland, which also has the top rating that Spain lost in 2009, sold five-year bonds at 0.872 percent. France auctioned 7.26 billion euros of 13-week and 50-week bills, paying 0.185 percent to borrow for almost one year.
Shares in Spanish banks tumbled today after the government demanded an additional 30 billion euros of provisioning on real estate lending on May 11 and estimated it would have to inject less than 15 billion euros into struggling lenders. Spanish banks have been the main buyers of government debt this year, more than doubling their holdings in the four months through March, according to Treasury data.
Those lenders borrowed a record 264 billion euros from the European Central Bank in April, Bank of Spain data showed today. The amount compares with 228 billion euros in March, following the Frankfurt-based central bank’s two tenders of three-year loans in December and February.
European austerity bites deep into Spain
Despite Germany, euro zone sinks towards recession
(Reuters) – Strong production in Germany could not make up for a slump across the rest of the euro zone in March with declining output at factories falling and signaling an oncoming recession may not be as mild as policymakers hope.
Industrial production in the 17 countries sharing the euro fell 0.3 percent in March from February, the EU’s statistics office Eurostat said on Monday.
Economists polled by Reuters had expected a 0.4 percent increase overall.
The figures stood in contrast with German data showing output in the euro zone’s largest economy up 1.3 percent for the month, according to Eurostat, 2.8 percent when energy and construction are included.
“With the debt crisis, rising unemployment and inflation above 2 percent, household demand is weak and globally economic conditions are sluggish, so that is making people very reluctant to spend and invest,” said Joost Beaumont, a senior economist at ABN Amro in Amsterdam.
Eurostat says output fell 1.8 percent in Spain and in France, the euro zone’s second largest economy after Germany, output was down 0.9 percent for the month.
The Netherlands saw a decline of 9 percent, but that was after a huge jump in the previous month.
Many economists expect Eurostat to show on Tuesday that the euro zone entered its second recession in just three years at the end of March, with households suffering the effects of austerity programs aimed at cutting debt and deficits.
“Industrial production is a timely reminder that first-quarter GDP will likely show a contraction,” said Martin van Vliet, an economist at ING. “With the fiscal squeeze unlikely to ease soon and the debt crisis flaring up again, any upturn in industrial activity later this year will likely be modest.”
European officials have repeatedly said the slump will be mild, with a recovery in the second half of this year. But the strong economic data seen in January has unexpectedly faded and business surveys point to a deeper downturn, with the drag coming from a debt-laden south, epitomized by Greece, Spain and Italy.
Economists polled by Reuters last week estimated the euro zone economy shrank 0.2 percent in the first quarter, after shrinking 0.3 percent in the fourth quarter of last year.
“We suspect that a further slowdown in the service sector meant that the wider economy contracted by around 0.2 percent last quarter,” said Ben May, an economist at Capital Economics in London. “What’s more, April’s disappointing survey data for both the industrial and service sectors suggest that the recession may continue beyond the first quarter.”
EU leaders will meet in Brussels on May 23 to try to map out ways the euro zone and the wider European Union can return to growth while still cutting debts and deficits, but economists and investors say there is little room to maneuver.
“In addition to ‘high alert and forceful’ crisis management, Europe still needs to articulate more clearly its longer-term game plan,” Erik Nielsen, Unicredit’s global chief economist, wrote in a note to clients on Sunday.
In terms of the March output data, economists said the performance underlines the weak demand for goods such as machinery and consumer products, as the currency area suffers from the impact of a two-year debt crisis that has driven unemployment to a record high.
On an annual basis, factory output sank 2.2 percent in March, the fourth consecutive monthly slide, Eurostat said, and only Germany, Slovenia and Slovakia were able to post growth.
India Inflation Quickens, Curbing Room for Cutting Rates
Indian inflation unexpectedly accelerated in April, crimping the central bank’s scope to bolster economic growth by extending interest-rate cuts. Stocks fell, reversing earlier gains.
The benchmark wholesale-price index rose 7.23 percent from a year earlier, after climbing 6.89 percent in March, the Ministry of Commerce and Industry said in a statement in New Delhi today. The median of 32 estimates in a Bloomberg News survey was for a 6.67 percent gain.
Reserve Bank of India Governor Duvvuri Subbarao signaled last month that inflation might limit the room for further cuts after he slashed the benchmark rate by half a percentage point, flagging price risks from the fiscal deficit, energy costs and a weaker rupee. Greece’s political turmoil and a deepening debt crisis in Europe are increasing pressure on Asian nations to support growth as exports falter from Taiwan to Malaysia. China cut banks’ reserve requirements on May 12 to revive demand.
“The Reserve Bank of India faces somewhat of a dilemma,” Robert Prior-Wandesforde, Singapore-based director of Asian economics at Credit Suisse Group AG, said in a note after the report. “Our guess is that the chance of a June rate move has diminished.”…
Euro-Area Industrial Output Unexpectedly Fell in March: Economy
European industrial production unexpectedly declined in March, capping a quarter that probably saw the economy slip into its second recession in as many years.
Production in the 17-nation euro area slipped 0.3 percent from February, when it advanced 0.8 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast a gain of 0.4 percent, the median of 34 estimates in a Bloomberg News survey showed. In the first quarter, industrial output fell 0.5 percent….
Greek Elections Loom as Key Bailout Opponent Defies Unity
Greece’s political deadlock went into a second week as President Karolos Papoulias failed to secure agreement on a unity government and avert new elections with the country heading toward a possible exit from the euro area.
Greece’s biggest anti-bailout party, Syriza, defied overtures to join the government yesterday, deepening the impasse. Leader Alexis Tsipras won’t attend a meeting called by Papoulias today at 7:30 p.m. Athens time, the party said in an e-mailed statement.
Syriza won’t betray the Greek people,” Tsipras said in statements televised on NET TV after meeting with Papoulias and the leaders of the New Democracy and Pasok parties. “We are being asked to agree to the destruction of Greek society.”
Papoulias spent yesterday trying to coax the country’s three biggest parties into a coalition after a week of talks failed to deliver a government. If Papoulias’s efforts fail, new elections will need to be called. Today’s meeting will be with the leaders of two of the three biggest parties, and the head of the smaller Democratic Left party, state-run NET TV said..
Syriza Poll Lead
Syriza would come in first, though short of an outright majority, with 20.5 percent of the vote, if elections were held again, according to a Kapa Research poll for the newspaper To Vima, released May 12. It got 16.8 percent in the May 6 election. Support for New Democracy would fall to 18.1 percent from 18.9 percent and Pasok would drop to 12.2 percent from 13.2 percent, according to the survey.
“It’s not about arithmetic,” Evangelos Venizelos, the socialist Pasok leader said after yesterday’s meeting. “If someone wants to drag the country to elections again to find ourselves in the same process and possibly the same dead end, with slightly different and better terms for some, then they must assume that responsibility.”
The Kapa poll showed 78 percent of Greeks want the government to do whatever possible to keep Greece in the euro area and that 72 percent want political parties to make concessions to form a coalition, compared with 22.9 percent who want new elections. Kapa surveyed 1,007 Greeks May 9 and 10. The poll had a margin of error of 3.1 percentage points.
Two Seats Shy
The May 6 election resulted in New Democracy and Pasok, the two parties that supported the international rescue in an interim government this year, being two deputies short of the 151 seats needed for a majority in Parliament.
Tsipras failed to reach an accord with other leaders after giving them an ultimatum to renounce support for the EU-led rescue in order to enter the government. Both Antonis Samaras, the leader of New Democracy, and Venizelos, rejected the request.
Samaras, whose party finished first, gave up trying to forge a coalition after six hours of talks on May 7.
A Greek departure from the euro could be “technically” managed yet would damage confidence in the monetary union, European Central Bank Governing Council member Patrick Honohansaid May 12.
“It is not necessarily fatal, but it is not attractive,” Honohan told a conference in the Estonian capital, Tallinn….
Euro Officials Begin to Weigh Greek Exit
Greece’s possible exit from the euro moved to the center of Europe’s financial-crisis debate, rattling markets as authorities in Athens struggled to form a government.
Meetings brokered by Greek President Karolos Papoulias were set to continue today after Syriza, the leading anti-bailout party, rejected a unity government following inconclusive elections May 6. That moved the country closer to a new vote, with at least five European central bankers broaching the once- taboo topic of its exit from the euro.
We’re really getting to a denouement,” Michael O’Sullivan, head of portfolio strategy at Credit Suisse Private Banking, said today in a Bloomberg Television interview. “We’re getting to the part where a decision has to be made” on whether Greece leaves the 17-nation currency union, he said.
Euro finance ministers meeting today in Brussels may discuss the bailout for Greece, as well as the situation in Spain, where the government last week made a fourth attempt to clean up banks. Getting German Chancellor Angela Merkel to weaken her demand that debt cutting be the core of the crisis response will be a key objective of new French President Francois Hollande when the two meet tomorrow in Berlin.
The euro fell for the 10th day in 11, weakening 0.4 percent to $1.2872 at noon in Brussels, the lowest in three months. Bonds in Italy and Spain tumbled, with Spanish 10-year yields climbing to more than 6.2 percent today for the first time since Dec. 1. Each country’s spread against German 10-year notes jumped by more than 30 basis points.
The Euro Stoxx 50 Index declined as much as 2.7 percent to its lowest in almost six months after European Central Bank policy maker Christian Noyer today joined ECB officials Luc Coene, Jens Weidmann, Patrick Honohan, Ewald Nowotny and Joerg Asmussen in discussing a potential Greek exit from the euro.
“Whatever happens in Greece won’t be a problem for the French financial sector,” Noyer told journalists today in Paris. “I don’t know a single group that will be placed in difficulty by an extreme scenario for Greece.”
German Finance Minister Wolfgang Schaeuble urged the Greek government to stay within the monetary union, saying that departure would trigger a crippling devaluation, though he signaled that such a scenario would be manageable.
“We can only hope that the Greeks make the right decision,” Schaeuble told a group of students today at a Berlin school. “If they make another decision, we’ll have to react in such a way as to ensure that the consequences are as contained as possible.”
No New Concessions
The euro finance ministers, known collectively as the eurogroup, will convene in Brussels at 5 p.m. local time.
The European Commission isn’t considering easing the terms of the joint bailout for Greece from the EU and the International Monetary Fund, EU spokesman Amadeu Altafaj said, denying a report by Athens-based Real News.
“I’m not aware of any discussions within the commission to grant new provisions, new concessions in the program” for Greece, Altafaj said by phone yesterday.
A Greek departure from the euro could trigger a default- inducing surge in bond yields, capital flight that might spread to other indebted states and a resultant series of bank runs. Although Greece accounts for 2 percent of the euro-area’s economic output, its exit would fragment a system of monetary union designed to be irreversible and might cause investors to raise the threat of withdrawal by other states.
Europe’s central bankers are discussing the possibility of a Greek departure and how to handle the fallout, Swedish Riksbank Deputy Governor Per Jansson said in an interview on May 11.
European Union Economic and Monetary Commissioner Olli Rehn said in Tallinn that the region is “certainly more resilient” to a possible Greek exit than it was two years ago, when the bloc would have been “massively underprepared.”
“I still believe that Greece can stay in the euro and find the way to make sure that it respects its commitments,” Rehn said. “It would be much worse for Greece and Greek citizens, especially for the less well-off Greek citizens, if Greece did leave the euro than for Europe as such. Europe also would suffer, but Greece would suffer more.”
Under a story headlined “Akropolis Adieu, Why Greece Must Leave the Euro”, Germany’s Der Spiegel magazine today reported that the EU may provide funding for Greece even after a euro exit, citing plans formulated by Schaeuble’s ministry.
After elections in Greece and France signaled a backlash against the German-led agenda of scaling back spending to battle the debt crisis, officials across the region have re-tuned their rhetoric to emphasize growth and employment.
“Syriza won’t betray the Greek people,” party leader Alexis Tsipras said in a statement yesterday as Papoulias began a final bid to coax parties into a coalition. The failure to form a government has prompted concern that Greece may backtrack on pledges to cut spending as part of the bailout requirements negotiated since May 2010, so foreshadowing a euro withdrawal.
The latest defeat was suffered by Merkel yesterday in Germany’s largest state, North Rhine-Westphalia, where her Christian Democratic Union suffered its worst defeat there since World War II. The German Social Democrats, the main opposition party nationally, tightened their grip among German regional governments.
Hollande, who defeated single-term President Nicolas Sarkozy on May 6 to become the first Socialist president of the Fifth Republic in almost two decades, will take office tomorrow and begin his campaign to shift the focus of crisis-fighting away from austerity. Merkel said last week that she’ll welcome Hollande for talks “with open arms.”
“I expect both of them to give a clear signal of commitment to stability of the euro zone of overcoming the sovereign debt crisis,” Peter Altmaier, the deputy floor leader of Merkel’s party, said yesterday on Sky News.
With Hollande among leaders calling for a “growth pact” alongside the German-championed fiscal treaty, euro leaders will look toward a summit dinner in Brussels on May 23.
Investors will also be watching tomorrow when the Greek government is scheduled to repay 436 million euros ($563 million) on a floating-rate note held by investors who shunned its bond-loss accord. An EU official said May 10 that the payment decision is up to the government in Athens.
The government in Athens would run out of cash by early July if creditors decided to withhold their next aid payment in reaction to stalling progress in Greece, according to a report last week by Bank of America Merrill Lynch.