Europe midday: Spain may make formal aid request today

Date: Friday 22 Jun 2012

-Spain may make formal aid request this afternoon -El Mundo
-Bullard (Fed) says hurdle to QE high
-Lacker (Fed) says persistent fall in inflation may call for more stimulus
-US money-market funds reduce exposure to Europe –Fitch
-EU will impose sanctions on Iran
-Juncker says Spain aid through EFSF and then ESM
-Spanish 10 year bond yield falls 12bp to 6.49%

FTSE-100: -0.88%
Dax-30: -0.91%
Cac-40: -0.69%
Stoxx 600: -0.60%
FTSE-Mibtel: 0.44%

European equities are now holding moderately lower on investors´ concerns regarding the global growth outlook, along with persistent and acute worries over the situation in the Eurozone periphery.

Contributing to the above, surely, is the running debate between European authorities over how to proceed in the fight against the financial crisis. That while their leaders meet in Rome to try and iron out their differences.

In a similar vein, remarks from policy makers on the other side of the Atlantic, this afternoon, point to a high “hurdle” for further quantitative easing.

Be that as it may, financial market tensions continue seemingly unabated. In this regard, Fitch comments today on how US money-market funds have been reducing their exposure to European banks.

On a slightly more positive note, Spanish long-term bond yields have reversed course and are now falling slightly again. Spanish daily El Mundo cites the country´s Economics Minister as having said that a formal petition for aid will be submitted today.

This after bond investors yesterday seemed to give a lukewarm welcome to the country´s audit of its financial system. For one, Madrid seems to be concentrating on the least adverse of the scenarios contemplated in those audits, some say. Furthermore, other observers point out that the audit does not take into account the possible short-term losses on the Spanish government bonds held by the banks.

What is needed? For analysts at Barclays, “it is clear that the situation in Spain will remain unsettled for the near future. Some reactivation of secondary market purchases, coupled with further ECB actions (a rate cut of 50bp on July 5 and collateral easing), along with fundamental progress at the June 28-29 meeting, is essential for the unstable equilibrium not to deteriorate further or for some long-lasting improvement in Spanish bonds, in our view.”

Nevertheless, economic authorities do seem to be keenly aware of the risks. In fact, the head of the International Monetary Fund yesterday stressed the need to break the vicious circle between bank and sovereign debt.

The President of the Eurogroup, Jean Claude Juncker, has reportedly said that Spanish aid will be funneled through the ESM, thus avoiding the subordination of Spain´s sovereign debt. However, that will only be the case until the ESM comes into force, although for some analysts that could be a costly mistake.

Credit Suisse downgraded by 3 notches

Ratings agency Moody´s last night downgraded Credit Suisse´s rating by three full notches, as part of a ratings action on 15 global banks.

Bayer is declining this morning after US regulators declined to approve a new use for its Xarelto blood clot preventer.

Sharp drop in IFO index

The German business confidence index for the month of June has come in at 105.3 points, after 106.9 in the month before and versus consensus forecasts for a reading of 105.9.

That led by a dive in the expectations sub-index.

Brent below 90 dollars

Front month Brent crude futures are now moving higher by 0,988 dollars, to 90.12 dollars per barrel. That after the European Union imposed new sanctions on Iran. Last night it lost the 90 dollar level for the first time since the end of 2010.

The single currency is more or less steady at the moment, towards the 1.2550 mark.

AB

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