Soverign Debt Panic Amongst The PIIGS

Stock-Markets / European Stock Markets
Sep 08, 2010 - 08:57 AM
By: PaddyPowerTrader

U.S. stocks fell for the first time in five days Tuesday, ending the longest streak of gains for the S&P 500 Index since July, on concern the European debt crisis may worsen and hamper global growth. Bank of America and Citigroup fell at least 2% as European banks slid on concern stress tests understated potential losses from sovereign debt.

Meanwhile ConocoPhillips and Chevron slumped more than 1.2% as crude oil fell the most in a week. But Oracle rallied 5.9% after naming Mark Hurd, former chief executive officer of Hewlett-Packard as president.

Today despite some token buying by the ECB and a decent Portuguese bond auction the bond vigilantes have again been out doing their worst pushing the Irish / German 10 year spread out to levels not seem since 1988 when the debt GDP ratio was 118% . Indeed yesterday saw the worst single daily performance by Irish Government bonds ever in terms of spread widening.

Greece is also back in the crosshairs in response to a downward revision to Q2 Greek GDP to -1.8% from -1.5% originally, and on news the National Bank of Greece plans to raise Eur2.8 bln of capital. The latter may be especially alarming in the current environment, but really reflects a desire for extra security and also a cash hoard to potentially spend on weaker rivals; ATEbank stands prominently in this respect.

Today’s Market Moving Stories

The stand-out mover in FX today was GBP, which rallied sharply, largely it would seem on news that Vodafone has sold its stake in China Mobile and intends to use 70% of the proceeds (£4.2bn) to fund share buybacks. The macros community had started to build GBP shorts in recent days and this M&A flow prompted a flurry of short-covering, assisted as well by better than feared Halifax house price data.

Irish Banking

According to the Irish Times this morning, the bank’s chairman has stated that a statement on Anglo should be expected today. Who will make it or what the nature of the announcement will be is not evident, but keep eyes peeled around 4pm. Recent media reports have indicated strongly that an orderly wind down of the bank over 10-15yrs is the new preferred option. But what the markets are really looking for is an update on the total FINAL bottom line kitchen sink cost of the bailout and whether its closer to Eur 25bn or S&P’s recent & much criticized Eur 35bn figure. UPDATE – SEE VERY BOTTOM OF THIS POST.

Bloomberg reports that private equity heavyweight J.C. Flowers and three other bidders for Ireland’s EBS Building Society may buy and merge several lenders to create a new competitor to the country’s biggest banks, two people familiar with the situation said. J.C. Flowers., the U.S. buyout firm, Dublin-based Cardinal Asset Management, backed by U.S. private equity firm Carlyle Group, and Doughty Hanson & Co. are vying with Irish Life & Permanent Plc to take control of EBS, said the people who declined to be identified. Each of the bidders said in talks that they plan to merge EBS, the country’s biggest customer-owned lender, with other building societies. That would create a new rival to Bank of Ireland Plc and Allied Irish Banks Plc, the country’s biggest lenders. EBS and the National Treasury Management Agency, which is overseeing the sale, will probably select a preferred bidder or two short-listed bidders next week, according to one of the people.

Japan

Japanese Finance Minister Yoshihiko Noda said he is prepared to take “boldâ€