The eurozone worries continue and now Spain is having to prop up its banking sector as it injects cash into its third largest lender. It’s a reminder that the state of Spain’s property market is in serious trouble following the boom years back in the mid noughties when developers were clambering to get a piece of the action, building flats and villas left right and centre on borrowed money.
Now that no one is around to buy these properties and banks are not willing to lend to those who might be sniffing around for a bargain their values have completely plummeted. The issue with Bankia is that it is one of the most heavily exposed to the property market to the tune of some 50b euros, almost double the exposure of the next European bank. If we think that we, as a British tax payer, are hard up for having to take the brunt of the banking sector’s mistakes here, this is almost small beer compared to what some of Europe’s taxpayers have had to endure.
Whilst such an intervention by the Spanish government has widely been expected for some time now, the overriding fear amongst investors is that the country is slowly going down the route of Ireland, where they made their own interventions in their banking sector just before having to get its first bailout. If Spain goes down the same route then the focus will move to Italy, the most indebted beast within the eurozone and this will really spell trouble.
Amid growing concern regarding the political turmoil in Greece after the country’s failure to put together a coalition government, the Dow Jones extended its losses to six sessions in a row. It dropped to an intraday low of 12748 getting closer to support at 12710 on April 10th only to rebound towards the close, finishing down by some 85 points at 12835. This semi rally from the lows has meant that the European indices have opened slightly higher and at the time of writing the FTSE is at 5540, in the black by some 15 points.
The highlight of today comes in the form of the BOE interest rate decision. Will they, won’t they continue with QE when the consensus is that they won’t, however with the UK economy back in an official recession there’s a chance that they might pump a little more dosh into the market. The problem with this is that the Bank is unsure just how much its current QE program is causing inflation to remain well above target and so they can’t go too mad with their money printing, but at least in the last few days crude prices have declined from their highs and maybe, just maybe, at some point we might see this translate into lower prices at the pump.
We saw a move below the 1.3000 mark for the single currency as Greek politicians failed to agree on a power sharing deal that could allow the debt-laden nation to address its immediate issues and that’s where we remain this morning. Despite that it seems Europe remains committed to paying the next instalment of aid, possibly trying to put a floor under the euro’s slump. Anyway, another downward move for the EUR/USD pair losing 67 pips to 1.2932, and at the time of writing we’re at 1.2955.
Investors discarded gold again and instead searched for safety into the US dollar and yen. It seems the precious metal lost some of its safe harbour’s appeal lately but it will be interesting to see its performance if all bets are off for Greece. Could it be forced into selling to cover margin calls elsewhere or turmoil hedge buying? For now gold moved below $1600.00, closing $16.33 down at $1588.86.
The WTI crude prices fell in the early trading on fears of an escalation in Greek’s debt troubles, but a mixed bag on the Department of Energy’s weekly inventories report somehow offered a late recovery. Technically, we had another test on support just below $95.50 and although a fresh recent low was posted, at $95.17 we noticed bargain hunters joining the oil market again. Overall, the WTI crude prices lost 57 cents to $96.81.