Europe afternoon: Volte face for Italy after bond auction
Thu 14 Jul 2011
LONDON (SHARECAST) - Having been one of the few bright spots on the European mainland at the start of trading this morning, the Italian market has found one of its reverse gears after the country's bond auction, which saw yields hitting a new high.
Italy sold 2016-maturity bonds worth €1.25bn at a yield of 4.93%, the highest since June 2008. The 2026-maturity bond sales raised €1.716 billion euros at 5.90%, a record high yield.
The MIB index in Milan is down 171 at 18,671, with banks at the forefront of the retreat. The CAC in Paris is off 30 at 3,763 and the DAX in Frankfurt is 26 weaker at 7,241.
There is not much corporate news to distract investors, though the start of the second quarter earnings season in the US is having its effect on European shares. Hoteliers Accor and Intercontinental Hotels are both on the back foot after US rival Marriott's third quarter earnings guidance disappointed investment analysts.
The prosaically named Software, the German business software giant, is wilting after it said its second quarter profits will be more or less flat, year-on-year.
Cement maker Lafarge hardened after it said it would sell its Gypsum units to Etex group for €1bn.
Ahead of the results of the European banking stress tests tomorrow, UniCredit has lowered its earnings per share (EPS) estimates for Spanish banks due to a weak economic situation that will lead to higher costs and provisions. The Italian broker expects EPS to fall by an average of 11% for BBVA and Santander.
The broker seems to agree with the analysts at Bernstein, who downgraded Spain's two largest banks a few days ago.
According to the Italian analysts, one of the main worries about Spanish banks is that they need to raise capital, especially Santander.