Finance Matters

Posts Tagged ‘Europe’

The IBEX 35 closed at nine-year lows, finally breaking its lowest value since the financial crisis began—6,817.4 points in March 2009.

The index ended trading today at 6,812.10, after falling 2.78 percent on the day. It had been trading far lower on the day, however, at one point down to 6,733.

This is the lowest value of the index since October 2, 2003, when it closed at 6,762.4 points. This gives the IBEX a value lower than it had on September 16, 1997, the first time it surpassed this level to close at 6,879.90.

Spanish equities have been in free-fall since late March. Around that time, enthusiasm generated by two long-term refinancing operations from the European Central Bank—in which the bank pumped cheap cash to banks—finally began to wear off.

Take a look at the IBEX 35 since May 2, 2000:

NOW READ: This Is Why Germany Has Zero Desire To Fix Anything In Europe >

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Update 11:20

The Dow is now down just 60 points.

Update 10:20

The Dow is now down 160.  There are reports that eurozone leaders are debating whether to delay bailout funds to Greece.

Original 9:40

The markets just opened and stocks are down.

Dow down 114 points.

S&P down 13 points.

Nasdaq down 30 points.

Once again, the story is Europe.

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Yesterday the markets shocked everyone by rallying in the wake of this past weekend’s European elections tumult.

Today: Things are going sharply lower.

Italy is down 1.5%.

France is down 1.4%.

Germany is down 0.3%.

US futures are off about 0.4%.

Yields are a tad higher across the board in Europe, as well.

In Asia, markets didn’t do much special, with Japan rallying 0.7%, and Shanghai ending just down a hair.

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Continuing with our theme of the morning on possible bad outcomes in Europe, we wanted to pass along this note from Cagdas Aksu at Barclays titled: Eurozone Rescue Funds: Limited buffer in a pessimistic scenario.

The basic idea is that all these rescue funds that they have (EFSF, ESM, etc.) will prove to be a joke if things get bad.

For example, there’s now 500 billion EUR from the rescue funds, and $430 billion committed from the IMF, but if the contagion were to aggressively spread to Spain and Italy, they’d be wiped out, as this table nicely shows.

Now there is the possibility of juicing a little more, as Barclays notes, and it’s for this reason that they think we’re not going to see the extreme bond market rout that we saw last autumn. But ultimately these “firewalls” in place are really thin buffers that might not do very much.

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Shortly before Mario Draghi started his press conference at the European Central Bank’s meeting in Barcelona on Thursday, his predecessor Jean-Claude Trichet was addressing a more sympathetic audience at the St Gallen Symposium in Switzerland. If anything, Mr Trichet was probably the cagier of the two.

In spite of some robust questioning from the BBC’s Stephen Sackur, the former ECB president came across as unrepentant about the ECB’s role during the eurozone crisis. He argued, for example, that 14 years ago, 99 per cent of observers would have dismissed as impossible that the euro would keep its value amid low inflation – a performance that he said bettered that achieved by the national central banks in the 15 years before the single currency’s birth. “Had I added that this [performance] would be observed after five years of the worst crisis ever, [the sceptics] would have been 100 per cent,” Mr Trichet said. The nearest he came to admitting to flaws in the eurozone project was when he said the financial crisis had been “like an X-ray or scanner that reveals the problem you might have”.