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  1. Wealth
July 23, 2012

S&P: European Round-up

By Spear's

The S&P Euro 350 started the week under heavy selling pressure, closing down -2.35%, on persistent concerns over a full rescue package for Spain as rumours mounted that other regions after Valencia will apply for government help

The S&P Euro 350 started the week under heavy selling pressure, closing down -2.35%, on persistent concerns over a full rescue package for Spain as rumours mounted that other regions after Valencia will apply for government help. In Italy, speculation about a potential Sicilian default also continued to make headlines. Elsewhere, German Finance Minister Wolfgang Schaeuble warned that Greece must redouble efforts to comply with bailout conditions and the IMF said it is considering stopping its financial support to the country ahead of tomorrow’s critical troika audit.

Borrowing costs in Spain continued to soar today, amid fears that a full sovereign bailout may be required after the Bank of Spain estimated that GDP contracted by -0.4% q/q in 2Q. Spanish ten-year bonds yields reached new euro-era highs above 7.5%, taking the spread against the bund to 638 pts. Meanwhile, the differential between the 10-year Italian Btp and the bund stood at an equally alarming level of 520bps. In an auction of 12-month bills, the Bundesbank sold EUR 6.338bn, twice as much as the planned target, with a rate of return of -0.054%. US, UK and German bond yields are close to record lows.

On the corporate front, no sector ended in the black, with materials the day’s worst performers amid growing fears over Europe. Japan cutting China’s economic outlook added to the gloom for commodities. Financials were also among the day’s biggest losers, with Italian and Spanish bank shares coming under severe selling pressure. Wall Street tracked European stocks down, also weighed down by lower-than-expected 1H profits for McDonald’s Corp.


  • FTSE 100 (-2.09%): : Barclays deputy chairman Sir Michael Rake said he did not want to be considered for the top role. Hammerson gave up earlier gains despite reporting 1H earnings ahead of forecasts. Vodafone largely escaped the battering across equity markets as BarCap lifted its target on the shares following 2Q revenues on Friday. The broker said that Vodafone offered some of the best growth prospects of European peers. Kingfisher declined after JP Morgan downgraded the stock to neutral on concerns over prolonged macro weakness in France.  

  • CAC 40 (-2.89%): : Banks were the main drag on worries about contagion from the eurozone periphery. BNP Paribas and AXA were among the worst performers. PSA will supply Toyota with light commercial vehicles for sale in Europe under the Toyota brand, under a new agreement. Technip won a contract for the construction of a halobutyl facility in Al-Jubail, Saudi Arabia.  

  • DAX (-3.18%): : Deutsche Bank, Commerzbank and Allianz plunged. Berenberg initiated Deutsche Bank with sell. Bayer fell after the lack of success of Phase III Nexavar-Tarceva trial on patients with liver cancer. Lufthansa will stop flying from Munich to Singapore following public authorities’ decision not to extend Munich airport. Fresenius CEO Ulf Schneider told Reuters the company had sufficient resources to take over Rhoen-Klinikum despite the acquisition of US-based blood collection equipment specialist Fenwal.  

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  • IBEX 35 (-1.1%): : Shares plunged on heightened fears that Spain may need a full bailout. Infrastructure and utility shares were among the worst hit. The CNMV announced a three-month ban on short-selling of Spanish shares. Enagas signed a deal to buy 90% of gas transport company Naturgas from EDP. Santander will shut almost 100 high street branches as it battles to complete the integration of the British lenders it bought in the financial crisis, according to The Sunday Times. Mediaset Espana ad revenues reportedly fell -12.4% in 1H.  

  • FTSE MIB (-2.76%): : Financials pared heavy losses after market watchdog Consob banned short-selling for one week. In other news, Intesa Sanpaolo is entering a jv with Russian Gazprombank to invest up to EUR 300m in private equity businesses. Ansaldo STS is looking at forming a consortium with Unicredit and Impregilo aimed at providing infrastructure services for the construction of the high speed railway line between Moscow and St Petersburg, media report. Eni completed the sale of 5% of GALP Energy to Amorim at EUR 14.25/share and signed a loan facility agreement with Russian state oil company Rosneft to jointly conduct exploration activities in the Barents Sea and Black Sea. 

  • SLI (-%): : Novartis was one of the better performers, falling only slightly after the US FDA approved Afinitor (everolimus) tablets for the treatment of postmenopausal women with advanced hormone receptor-positive, HER2-negative breast cancer in combination with exemestane after failure of treatment with letrozole or anastrozole. Julius Baer was a rare gainer as it reported stronger-than-expected 1H earnings.  

  • AEX (-2.05%), BEL20 (-%): : Philips rallied after announcing above-expectations 2Q sales and net profit. ING Groep plummeted, with investors worried over its holdings in risky Spanish assets. SES was dragged down by the floor’s bearish sentiment, despite Societe Generale’s target price lift on favourable fx and solid 2Q underlying growth. 

  • OMXS (-1.9%), OMXC (-2.11%), OMXH (-2.41%), OSEBX (-2.63%): : Deutsche upgraded Tele2 to buy from hold. Nokia is considering tearing up its traditional mass marketing strategy when it unveils its new Windows 8 smartphone in the autumn, the FT reported. The paper said Nokia was in talks with operators for exclusive partnerships instead. A jv led by Skanska has won a contract worth US$110m in South Carolina.  

Sector Performance:

  • Utilities (-2.38%), Financials (-3.14%), Telecoms (-1.59%), Materials (-3.07%), IT (-2.25%), Consumer Discretionary (-2.44%), Industrials (-2.58%), Consumer Staples (-1.94%), Energy (-2.42%), Health Care (-1.52%)  



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