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There was another sharp fall on stock markets yesterday as fears of deposit flight from Spanish banks accentuated concerns that a Greek exit from the euro would lead to severe contagion across the euro-zone. Bankia's shares closed 14% lower and the sector in Spain down 2.7%. Sentiment towards the sector has hardly been helped by the news that the ECB has suspended lending to Greek banks, in place of ELA funding by the Greek central bank, to place the contingent liability on the Greek government. |
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Overnight, Moody's Investor Service has downgraded 16 Spanish banks by between one and three notches and with a negative outlook. Although the downgrades had been expected yesterday, the negative outlook on the ratings will hurt sentiment further. Indeed, stock index futures on European indices point to further falls in stock indices close to 1% when markets open this morning. |
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Looking forward to next week, concerns that contagion from Greece is spreading to European peripheral countries will likely remain the market's focus. Unfortunately, this trend is evident in upward pressure on Irish bond yields. The 8-year yield closed at 7.4% yesterday, up sharply from the 6.8% yield that has prevailed in recent weeks, and demonstrating the clear links between events in Greece and funding conditions for the Irish sovereign. |
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