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European Indexes Fall Again

Markets declined for a second straight session Thursday amid persistent interest-rate fears

London: The FTSE 100 (-0.27%) closed in the red Thursday with Wall Street trading below the gain line as investors fretted over the outlook for interest rates and inflation. Yields on the US 10Y Treasuries debt securities moved above 5%. 10Y gilt yields hit their highest in nine years. Although the Bank of England has held rates at 5.5%, sentiment took a minor hit after reports that North Korea had fired a short-range missile. £ slid to US$1.9803. Oil surged to US$67.14 a barrel on OPEC remarks. Oil firms fired up - BP (+0.54%), Shell (+1.08%).

In company news, Vodafone (+2.00%) received a letter from shareholder ECS asking the mobile giant to free cash. Mining stocks were in focus, on a positive note by Morgan Stanley and rumours of a bid from a Chinese company on BHP Billiton (+1.58%). Drugmaker GlaxoSmithKline (+2.36%) rose on news competitor Takeda Pharmaceuticals is to add a new boxed warning on the Actos - which competes with diabetes drug Avandia.

In updates, utility Kelda (-0.66%) posted a 7.2% rise in fiscal operating profit. However, the £338.2 million figure came below analyst estimate of £345 million. Johnson Matthey (-2.03%) released a just-above-forecast fiscal underlying pretax profit of £242.6 million, up 10%. The platinum specialist said the outlook for PGMs is good. EasyJet (-1.92%) reported a 13.8% rise in May passenger traffic, but the load factor dipped by 0.3pp to 83.6%.

Paris: The CAC 40 (-1.46%) closed firmly lower Thursday, with Wall Street also in the red. Rate concerns are alive on both side of the pond, though sentiment was further dented by reports that North Korea has resumed missile testing.

Locally, Rhodia (-6.46%) has asked the AMF to investigate its share price movement today following rumours of an imminent profit warning that have been denied by the chemical group. Among blue chips, EDF (+0.9%) led gainers - it auctioned 996MW today. Renault (+0.24%) and PSA (-0.54%) have discussed furthering cooperation, wrote Challenges. Suez (-3.76%) weighed heaviest on rate jitters.

France Telecom (-1.17%) has bought Spanish internet provider from Deutsche Telekom for €320 million and could in return sell its Dutch Orange unit to DT. Also, the French telco traded ex dividend today and traders reported talk that the French state may make a placement.

Pierre-Andre Chalendar became new CEO of Saint-Gobain (-1.29%), which today reaffirmed fiscal 2007 targets. Bouygues (-0.7%) outperformed following a flurry of broker target increases - but Alstom (-2.73%) fell considerably following news Bouygues is 'happy' with its 25% stake, suggesting it will make no further move for Alstom. SocGen (-0.08%) talks with Unicredit reached an 'advanced' stage, Challenges reported.

Frankfurt: Xetra-Dax (-1.45%) knocked off another 1.5% Thursday after it had already dropped 2% in the previous session. The sell-off is in line with other European and US markets and was fuelled Wednesday by inflation worries. Thursday saw some geopolitical tension as North Korea fired two short-range missiles off its west coast. Oil rose over US$1.

Locally, Deutsche Post (+1.05%) closed as the only blue-chip riser on the Dax as traders noted rehashed rumours that TCI is buying KFW's Deutsche Post stake at €30 per share. In other news, Deutsche Telecom (-0.72%) plans to buy France Telecom's Orange NL, it said, without giving details. Sources familiar with the situation talked of DT paying some €1.3 billion for the Dutch group. Meanwhile, EU ministers have formally approved the Commission's plan to cap mobile phone roaming charges.

Financial daily the Edge reported that VW (-2.19%) will buy a 51% stake in a unit that will be formed to hold key assets in Malaysia state-controlled car group Proton. VW refuted this. UBS lifted its voting stake in Deutsche Boerse (-1.13%) to almost 7%, with the Swiss bank saying the holding, mostly on behalf of clients, is financial and non-strategic. On the broker front, target hikes from UBS, JP Morgan and ING for Porsche (+0.12%), MAN (-2.16%) and E.On (-2.64%), respectively, took centre stage. DCX (-0.43%) also saw a target hike, from Morgan Stanley.

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