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Market Update

European Markets Advance on ECB Loans Repayment

Author: Barry Randall
Last Update: 12:13 PM ET January 25 2013

4:00 PM Frankfurt – European markets advanced to a new 2-year high after more than expected banks are scheduled to repay loans to ECB next week. Banks led the gainers and the indexes higher in otherwise weak earnings season so far. German business climate index increase offered another signal of improving conditions in the euro zone.

European markets advanced across the region after Germany reported second economic data point that bolstered market sentiment.

Market indexes also advanced in 13 of the 17 nations across the region after the European Central Bank said 278 banks will repay loans totaling 137.2 billion euros next week. The early repayment of loans and higher than expected amount indicated at least parts of the euro zone financial system is getting healthier.

The latest index of business confidence released by a private research institute pointed to a sharp improvement in the outlook for business.

The Ifo business climate index increased to 104.2 in January from 102.4 in December, ahead of expectations set by economists.

The index pointed to an improvement in the domestic economic outlook in Germany, the powerhouse of the euro zone but businesses are also concerned of the brewing currency wars as Japanese government targets weaker yen.

Chief Economists Klaus Wohlrabe estimated economy to grow 0.2% in the first quarter from the fourth quarter and sees smaller chances of the economy slipping into a recession.

UK’s economy contracted at 0.3% annual rate in the final quarter to December according to the latest data released by the Office for National Statistics. The service industry was flat and output of production industries declined 1.8%, manufacturing fell 1.5%.

UK rebounded from a nine-month recession in the third quarter when the GDP increased 0.9% and may fall into a recession if the economy shrinks again first quarter in 2013.

Moody’s, S&P and Fitch, all three major rating agencies have placed the UK’s debt on negative watch.

Spain’s producer price inflation declined to 2.7% in December from 2.8% in November according to the statistics agency in Madrid.

Yesterday, the National Statistics Institute in Madrid said jobless count increased to 6 million in the final quarter of 2012. Unemployment rate peaked 26.02% from 25.1% in the third quarter.

Hungarian retail sales dropped 4.1% in November from a year ago month according to the Budapest based statistics office. The total sales fell after furniture and electronic goods sales dropped 16% in the month and books and computer equipment fell 9%.

Stocks in Review

Monte Paschi soared 11% to 25.95 euro cents on the speculation that the central bank of Italy will approve the aide to the lender as early as tomorrow and Finance Minister Vittorio Grilli is likely to address the parliament on the bank next week.

Investors also approved a plan to recapitalize the bank with 6.5 billion euros, a condition required to win the central bank approval.

STMicroelectronics increased 4% to 6.40 euros after positive comments from a broker Exane and said its venture with Ericsson AB is likely to invite investment from other companies.

EasyJet extended gains for the second day by 5% to 947 pence after the discount air yesterday reported a 9% increase in first quarter sales.

SolarWorld dropped 32% to 1.09 euros said that it will restructure debt of 805 million euros after a review by third party to determine the financial health of the company.

Nokia Oyj declined 7% to 3.05 euros after yesterday it said it swung to quarterly profit but struggled to increase its market share in the U.S. in smarphone sales. Danske Bank today lowered its outlook on the stock and demand for its low end phones is weakening rapidly.

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Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites. Market data: BATS Exchange. Inc