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Spanish bailout relief rally loses momentum

A bailout of the Spanish banking system agreed by the other eurozone constituents over the weekend was welcomed by financial markets this morning. European stocks were up around 2%, with the Spanish IBEX initially up over 6% and their sovereign bonds rallying with the yield reducing to around the 6% level, following the availability of up to €100 billion to shore up its banking system. Madrid suggested it will specify exactly how much it needs once independent audit reports on its banks are received next week. The money will be provided from the European bailout funds, the current EFSF or its imminent replacement the ESM, to the Spanish government’s bailout fund FROB, which will then direct funds to the banks as required. The origin of the funds is important, as if it is from the former fund, the EFSF, Finland have already stated they would want collateral.

There was also decent Chinese data out over the weekend, which was a relief given the Chinese rate cut late last week that many commentators suggested was pre-emptive of disappointing data. Whilst the trade balance and retail sales were not as bad as anticipated, they did indicate a slowdown.

As the day progressed however, the relief rally appeared to fizzle out, possible as a result of attention turning to the Italian economic situation, or the upcoming Greek election on the 17thof June. Equities gave up most of their early gains, as did the euro and Spanish bond yields ended the day closer to 6.5%.

The Spanish Ibex actually finished the day down 0.5%, with the FTSE 100 marginally lower (0.05%) at 5432. The DAX managed to hold on to its gains, and oil was up nearly 5% at $102.8/bbl after the OPEC chief hinted that the organisation may take steps to reduce the glut in oil market.

This was posted in Bdaily's Members' News section by James .

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