Spain's government bond yields remained elevated Tuesday after its
central bank confirmed that a key audit of its banks will be delayed
until September, causing some trepidation for investors as the
euro-zone's sovereign debt crisis continues to rumble on.
Financial markets were, however, markedly more calm overall while
investors wait for Greece's New Democracy party to come to a coalition
agreement with the socialist Pasok party, which could help to bring
some political stability to the country.
At 0800 GMT, Spain's 10-year government bond yield was up one basis
point at 7.14%. Although the scene was calmer in the debt markets than
in the previous session, borrowing costs still remained at dangerous
levels. The 7% level was the point at which other troubled European
countries--Greece, Portugal and Ireland--lost access to the debt
markets.
Spain's economy has come into focus following a proposed EUR100
billion ($125 billion) bailout for its banking sector. However,
investors are still waiting for audit reports on the sector in order
to assess the full scale of the problems Spain's banks are in. Spain's
central bank said Tuesday that the keenly awaited report will be
delayed until September, whereas the market had hoped the bank audit
would be ready this month. Spanish bank stocks fell. Banco Santander
fell 2.0% and Banco Bilbao Vizcaya Argentaria dropped 1.5%.
Elsewhere, Italy's 10-year government bond yield was up four basis
points at 6.08%.
In the "periphery" of Europe's stock markets, Spain's Ibex-35 index
was down a touch, 0.2% lower at 6506.20, Italy's FTSE MIB was down
0.2% at 12,978.18 and Greece's ASE index was off 0.7% at 576.77.
The benchmark Stoxx 600 was flat at 244.39, falling from highs on news
of the Spanish banks' audit delay.
"The markets remain the domain of the short-term trader as investors
go from hot to cold by the hour," said Mike McCudden, head of
derivatives at Interactive Investor.
Mid-cap stock Home Retail Group was leading the upside on the Stoxx
600. The stock soared 16% after its first-quarter results weren't as
bad as feared, with a pick up in Argos stores.
Food processor Danone slumped 6.2%. It has lowered its 2012 targets
after demand in southern Europe, particularly in Spain fell faster
than expected in the second quarter. Danone said its operating margin
in 2012 will be 50 basis points lower than in the previous year in
comparable data. This led to a fall in its peers too. On the FTSE 100,
Unilever fell 2.2% and Stoxx 600 food and beverages index dropped
1.4%.
In other stocks news, private investment bank Julius Baer Gruppe fell
0.3% after it confirmed that it is in talks with Bank of America about
acquiring Merrill Lynch's international wealth management business.
Hotel and restaurant firm Whitbread surged 6.8% following its
well-received first-quarter results. This helped the U.K. FTSE 100
higher and at 0810 GMT, the index was up 0.4% at 5515.34. Germany's
DAX was up 0.1% at 6255.79 and France's CAC-40 was flat at 3066.07.
Meanwhile, the Group of 20 leaders' summit enters its second day
Tuesday. While there has been some strong rhetoric from many of the
leaders, there have been no concrete announcements.
On the economic calendar, the German ZEW survey is scheduled for
release at 0900 GMT and the U.K. consumer price inflation for May is
at 0830 GMT.
Spanish debt will be in focus too as a 12- and 18-month bill auction
takes place, targeting volume of 2 billion euros ($2.53 billion) to
EUR3 billion. "Today will see us fretting once again over another
Spanish debt auction and with longer-term yields up over the key 7%
level, decisive action has to come soon to stem the rot and calm the
markets," warned Mr. McCudden.
Earlier, Asian shares posted modest losses Tuesday as investors
shifted their attention back to Spain's financial woes, overriding
Monday's post-election cheer from Greek election results.
Japan's Nikkei Average fell 0.7%, South Korea's Kospi ended flat,
while Australia's S&P ASX 200 edged 0.3% lower. In China, Hong Kong's
Hang Seng Index fell 0.1% and the China Shanghai Composite dropped
0.7%.
In foreign exchanges, the euro edged lower Tuesday on news of the
delay to the Spanish bank audit report. The euro was at $1.2574 from
$1.2575 late Monday. The dollar was at Y78.91 from Y79.12.
Elsewhere, the August Nymex crude futures contract was down $0.97 at
$82.63 a barrel and the August Brent futures contract was $1.50 lower
at $94.55. Spot gold was up $1.10 at $1,628.00 a troy ounce. The
September bund contract was up 0.27 at 142.91.
Write to Andrea Tryphonides at andrea.tryphonides@dowjones.com or
Twitter: @ATryphonides
(END) Dow Jones Newswires
June 19, 2012 02:45 ET (06:45 GMT)
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