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German IFO Does Nothing for the Euro

Tuesday, 27 June 2006 09:05:47 GMT  |  Terri Belkas, Junior Currency Analyst

Positive German IFO results failed to boost the euro during the early European session, as the currency remained in a narrow range.  The stronger than expected IFO business climate reading hit 106.8 for the month of June, vs. the estimated 105.0 and higher than May’s revised 105.7.  The sentiment index has been buoyed by improved export expectations, as well as resilient German competitiveness in the arena.  The import price index for Germany fell in line with expectations for May, gaining 0.2% for the month and 7.5% in annual terms.  Hawkish signals sent by both the European Central Bank and the US Fed may keep the euro on edge against the greenback, as speculation has mounted on more aggressive rate hikes than previously anticipated.  As of 8:52 GMT, the EUR/USD traded at 1.2590, just above Monday’s New York close of 1.2580.

In early trade, the FTSE Eurofirst 300 was up 0.4% to 1,284.34, while Frankfurt’s Xetra Dax was 0.4% higher at 5,536.41. The CAC 40 in Paris climbed 0.4% to 4,822.6 and London’s FTSE 100 gained 0.6% to 5,714.2.  Euronext, the pan-European stock exchange operator said its plans to acquire Borsa Italiana could take some time as it was not the Italian exchange’s only suitor.  Meanwhile, New York Stock Exchange’s chief John Thain said late on Monday that NYSE expected to have its agreement to acquire Euronext in front of shareholders for an autumn vote.  Shares in Euronext climbed 1.3% to €72.45.  Banca Monte dei Paschi di Siena gained 3.2% to €4.77 after it announced it was looking to integrate with Finsoe, the holding company which owns a controlling stake in Italian insurer Unipol.  The bank said if this course was not possible it would sell its Finsoe stake.  Anglo Irish Bank gained 2% to €11.59 as recent losses presented investors with a good buying opportunity.  Fears that Euro-zone interest rate increases will deter consumer spending and dent net lending have driven the shares down by nearly a third since the company reported in early May.  Bank of Ireland also benefited, gaining 1.5% to €14.02, while Allied Irish Banks rallied a more modest 0.3% to €18.30.  Oil stocks added weight to European gains.  Overnight, US crude rose to $72 a barrel for the first time in two weeks on fears that increasing demand for gasoline would sap US stockpiles.  France’s Total gained 1% to €49.75, while Norway’s Statoil added 1.8% to NKr170.  Utilities were also in focus after Spain’s Iberdrola announced it was to buy a 29% stake in China’s Guangxi Guidong Electric Power.

Benchmark 10 year German Bund yields gained two basis points to 4.098%, as the price dipped to 99.190.

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