Spanish banking woes add to Greek political uncertainty
Financial markets continued their “risk off” bias today, following the heavy selling of risk assets and flight to safety seen yesterday. Government bonds of the US, UK and Germany were once again in demand, pushing prices up and their yields down (to record lows in the case of the latter). The yield on Spanish 10 year debt was back above the worrying and psychological 6% level. This was largely precipitated by news that Spain is finalising plans, to be announced on Friday, to force its banks to raise up to €35 billion in provisions against loans in their portfolios. Share in the regions banks, which are thought to have around €180 billion of troubled assets on their balance sheets, were sharply lower, with some off as much as 7%. Oil was off once again, and the Euro fell around 0.5% against the dollar.
There was little in the way of developments in Greece. Although Alexis Tsipras’s issued an ultimatum requiring other parties to reject the Trokia bailout before considering the formation of a coalition government, his stance was widely expected.
The last half an hour of European trade saw markets recover from the worst of their losses, with the German DAX managing to finish in positive territory with a gain of 0.5%. The picture wasnt quite as optimistic for the aforementioned Spain, with the region’s IBEX index lower by around 2.8%, dragged down by banking stocks. The UK’s FTSE 100, which troughed at 5464 points, more than 1.5% lower an hour before close, actually finished at 5530 to a loss of just 0.4% on the day. There was a commensurate rally in the US, whose indices had opened more than 1% lower but were down less than 0.5% at the time of writing.