LONDON (ShareCast) - -Markets up as investors pin hopes on ECB liquidity.
-Draghi warns on Greece austerity “implementation”.
-Europe faces firewall pressure at G20 meeting.

FTSE-100: -0.05%
Dax-30: 0.81%
Euro Stoxx 50: 0.62%
SMI 0: -0.27%
Ibex 35: Flat
FTSE MIB: 1.07%

The majority of European stock markets posted gains on Friday as market attention focused on the European Central Bank’s next long term refinancing operation (LTRO) due on Wednesday.

The LTRO is a way of giving banks access to unlimited loans at very low interest rates.

It has two effects, firstly it allows banks to make big profits lending the money out at significantly higher interest rates than they pay to get the funding. This will strengthen their weakened balance sheets.

The second effect is to help the troubled sovereigns like Spain and Italy, because their currently very high yielding bonds will offer the biggest profits.

The last LTRO in December saw the ECB lend out €489bn, so many are wondering what the demand will be this time around. The Financial Times has a rather tongue in cheek survey which suggests it could be around €630bn.

In other news, European Central Bank (ECB) President Mario Draghi has said he considers that a turning point has been reached in the sovereign debt crisis and that Eurozone countries must now follow up with the implementation of austerity measures to assure an end to the saga.

In an interview with The Wall Street Journal (WSJ), Draghi expressed optimism that the worst was over in euro area, but insisted that member states need to move forward and complete fiscal targets.

Finance ministers from the G20 group of nations are meeting in Mexico this weekend to discuss issues facing the world economy. It’s likely the Europeans will come under pressure to enhance the resources currently available as a “firewall” to protect Italy and Spain from descending into the same chaos as witnessed in Greece

EQUITIES

Telecom Italia has cut its dividend by 25%, in an effort to reduce debts; the move saw the shares rise 6.8%.

German IT firm SAP has announced an 83% increase in its pay-out, its stock rose just 1.15% on the news.

French construction group Eiffage has forecast significantly stronger earnings for this year, pushing the stock up an impressive 16%.

MACROECONOMY

Germany´s gross domestic product grew at a 0.2% quarter-on-quarter rate in the last three months of 2011, in line with preliminary estimates, although exports fell less than previously thought.

Italian retail sales fell 1.1% month-on-month in December (Consensus: -0.7%).

OTHER MARKETS

Front month Brent futures had gained 0.26% to hit $123.94 per barrel at 16:42 in London.

The Euro/dollar had risen by 0.67% by 17:58 in Frankfurt, to 1.3463 dollars.

BS

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