FTSE LIVE: German court greenlights euro bailout but with conditions

| September 12, 2012 | 0 Comments

02:22 EST, 12 September 2012


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08:14 EST, 12 September 2012

14.00: The Footsie has given back early gains and is trading down 0.2 points at 5,792 in the wake of Germany’s court ruling in favour of the eurozone bailout fund.

A decision against the European Stability Mechanism could have thrown the region’s crisis-response into disarray and caused a meltdown on financial markets.

The ruling nevertheless came with conditions, namely that Germany’s liability for the ESM is capped at €190billion (£152billion) by law.

Crunch verdict: German Constitutional Court says eurozone bailout fund can go ahead but attaches conditions

Crunch verdict: German Constitutional Court says eurozone bailout fund can go ahead but attaches conditions

With Germany committed to the bailout fund and European Central Bank president Mario Draghi last week unveiling a bond buying plan to save the euro, there are hopes that the crisis in the single currency bloc might now abate.

‘The ruling was no surprise of course but the positive is that it removes that air of doubt from the markets as well as the last big obstacle to get the ESM working,’ said Joshua Raymond of City Index.

‘The ECB can now purchase bonds to keep stressed sovereign bond yields from escalating beyond unsustainable levels through the Outright Monetary Transactions programme.’

Lloyds Banking Group and Royal Bank of Scotland rose following the ruling, adding 1.2p to 38.3p and 8.5p to 273.2p respectively, while Barclays was 3p higher at 216.5p.

Mining stocks bounced back from earlier losses, as Eurasian Natural Resources added 0.5p to 340.4p, Antofagasta jumped 30p to 1256p and Vedanta Resources advanced 23.5p to 1002p.

Chocolatier Thorntons cheered investors as it said it was ‘heartened’ by recent trading after its Best of British range gave a boost to its turnaround plans.

The group’s note of optimism came despite a sharp fall in underlying full-year profits to just £850,000, as it counted the cost of weak Christmas trading and some of the most challenging conditions in its history. Shares were 0.9p higher at 28.2p.

12.00:

Investors have given a positive reaction to the German Constitutional Court’s ruling on the eurozone bailout.

The FTSE 100 is ahead 13.3 points at 5,805.5 as markets digest the news and look to the next steps in rescuing struggling euro members like Spain.

‘Today, financial markets have been glued to their TV screens watching a group of learned German judges,’ said Chris Beauchamp, market analyst at IG Index.

‘The German constitutional court issued its ruling on the European Stability Mechanism, saying that it rejected complaints that the fund was incompatible with the German constitution.

‘However, the picture wasn’t entirely rosy; there are conditions, with perhaps the most important being that German liability to the ESM should not exceed €190 billion without first consulting both houses of the German parliament.

‘With the Germans now seemingly fully committed to the ESM, and the Draghi [government bond buying] plan in force, hopes are high for an easing of the eurozone crisis.

Big announcement: Apple is expected to unveil the iPhone 5 today

Big announcement: Apple is expected to unveil the iPhone 5 today

‘Questions linger over whether Spain will kick up a fuss about bailout conditions, but the picture looks better than it has for some time.’

Ishaq Siddiqi of ETX Capital said: ‘European financial markets vaulted higher following the outcome of the German constitutional court who ruled in favour of the ESM’s legality.

‘The German court ruling did however come with conditions as the country looks to limit future liabilities of sovereign bailout requests.

‘However, the ratification of the ESM together with the last week’s ECB bond buying plan combine together as reasonably solid firewalls against sovereign defaults for the likes of Spain and Italy.

But he added: ‘We are now waiting for Spain to make its move but prime minister Mariano Rajoy is being rather coy, refraining to officially request aid with reports saying he wants to study the ECB’s latest action carefully as conditions are attached to a bailout.

‘But, it is just a matter of time before Spain asks for EFSF/ESM support and hence ECB interventions.’

Stock futures point to a higher open on Wall Street later, as U.S. investors catch up with eurozone developments as well as domestic matters.

Apple is set to unveil the iPhone 5 today, while Facebook founder Mark Zuckerberg has attempted to soothe investor nerves about the social network’s growth prospects.

Meanwhile, the Federal Reserve begins a two-day meeting which is widely expected to agree fresh stimulus measures.

An announcement on how the Fed intends to breathe life into the ailing U.S. economy is due tomorrow.

However, some Fed watchers think it may hold off on further quantitative easing until after the presidential election in November is safely over.

9.55:

Stocks have bounced 18.9 points to 5,811 amid relief that the German Constitutional Court has green-lit the eurozone bailout fund.

The court said Berlin can ratify the eurozone’s new rescue fund and budget pact as long it can guarantee there will be no increase in German financial exposure to the bailout fund without parliament’s approval.

‘Optimism prevails after the German High Court ruled – pretty much as expected – not to stand in the way of the ESM,’ said Anita Paluch of Gekko Global Markets.

David Morrison, senior market strategist at GFT Markets, said: ‘The dominant view was that the Constitutional Court would rule in favour of the new European bailout fund being ratified, but that it would apply conditionality.

‘In fact, that is exactly what happened. The main condition is that Germany must set a cap for liability to the ESM of €190billion.’

In London, mining stocks continuing their poor run as Anglo American dipped 40p to 1915p and Eurasian Natural Resources declined 3p to 336.9p.

BQ ad Screwfix owner Kingfisher revealed the wettest summer in 100 years had cost the group £30million in profit.

In the wake of a 17 per cent slide in bottom line pre-tax profits to £364million, Singer Capital said the results were below expectations and that downgrades to full-year forecasts were ‘inevitable’.

However, shares recovered from an initial fall to stand 1.5p higher at 273.85p.

Barratt Developments was more than 4 per cent lower in the FTSE 250 as the company’s full-year results triggered a fall back from recent highs.

The housebuilder said profits rose 159 per cent but the stock slipped 7.75p to 161.95p as analysts said the delay of a dividend payment until next year signalled a degree of caution.

8.30: The FTSE 100 has opened 8.9 points lower at 5,783.3 as investors await a German Constitutional Court ruling on the legality of the eurozone bailout fund.

The German Court is widely expected to give the green light, although there are worries over potential conditions that could be attached to the approval.

Eurozone watchers will also be keeping an eye on the Dutch election today, but recent opinion polls have contradicted earlier signals that radical eurosceptic parties could surge to victory.

Expectations are also rising that the Federal Reserve is about to announce more stimulus measures to support the fragile U.S. economy.

The Footsie shed 1.01 points to 5,792.19 points yesterday, consolidating a three-week closing high of 5,794 hit last Friday.

The Office for National Statistics is due to release monthly unemployment figures later.

The number of Britons claiming unemployment benefit is expected to have stayed stable in August compared to July. The ILO jobless rate is also seen unchanged at 8 percent.

Stocks to watch today include:

Glencore: The commodities traders would dispose of Xstrata’s stake in platinum miner Lonmin if it can win over Qatari investors to its £23billion takeover, the Daily Mail wrote.

Banks: Banks in London could be shut down or forced to pay into tax payer-funded bail outs against the wishes of the British authorities under controversial ‘banking union’ proposals from Brussels, according to the Financial Times and Daily Telegraph.

Kingfisher: The DIY group reported a 15.5 per cent drop in first-half pre-tax profit and said an uncertain economic backdrop was unlikely to improve for a while.

Barratt Developements: The housebuilder said its full-year profit before tax and exceptional items increased by 159.3 per cent to £110.7million.

Gulf Keystone Petroleum: The oil exploration company reported a first-half loss after tax of $31.4million, compared to $10.3million one year earlier. The firm said it plans to complete and submit the Shaikan field development plan by the end of January 2013.

President Petroleum: The oil group said it would raise £30.92million to finance a farm-in agreement with Pirity Hidrocarburos. The deal provides for President to earn up to a 59 per cent interest in the Pirity Block in Paraguay.

Laura Ashley: The retailer reported a first-half profit before tax of £8.3million pounds, up 13.7 per cent year on year.

Sage: The accountancy software firm’s shares rose as bid rumours did the rounds. Speculation is growing that a £5.58billion pounds, or 450 pence-a-share, bid from private equity players led by KKR and Blackstone could be in the offing, according to the Daily Mail market report.

The comments below have not been moderated.

This looks like the German male voice choir singing “hale to me my Euro”

royston amphlett
,

bournemouth, United Kingdom,
12/9/2012 13:20

I think its very generous of the hard working German taxpayers to go to such great lengths to bail out the overspending wasteful countries of the Mediteranian as those countries will never be able to balance their budgets.

peter
,

manchester,
12/9/2012 11:27

The German Court will not have the b—s to block it

Frankyboy
,

Lancashire,
12/9/2012 09:51

Never mind the markets.

What about the masses of unemployed being on tenderhooks??

I doubt any decision in Germany will make any difference……………..damage already done.

DONR
,

Auckland,
12/9/2012 09:37

Although passing almost unnoticed by most this looks to be the threshold point. To further integrate the banking systems it is necessary from the European perspective to ensure no member states are exempt from control by the ECB. This is critical to ensuring that Britain accepts the Euro as its currency. Once British banks are signed up to taxpayer funded European bailouts it will no longer be practical to maintain the pound as a currency.
From the political perspective this has always been the desired outcome. The Olympics will be seen as the last hurrah for the United Kingdom. A useful line in the sand for future historians. A good result for the idealistic values of social Europeanization. An extraordinarily bad day for the British, sorry ex British now E Central Bank conglomerated taxpayer.

Talkabouttoday
,

Somerset, United Kingdom,
12/9/2012 09:06

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