Global markets and specifically the European markets were relieved of their anxiety thanks to a smoothly executed rescue of Spain’s struggling Banco Popular.
Spain’s biggest bank Santander absorbed Popular for a nominal one euro. As the morning wore on the success of the process pushed shares in many major banks higher, supporting a recovery for Madrid’s stock market and fending off this week’s broadly weaker mood.
Analysis say that while the absorption and the subsequent effect on the markets are a huge positive, it also underlines the risks to growth, banking and government debt burdens that are likely to delay a major switch in language and policy direction by the European Central Bank at its meeting on Thursday.
This in turn has kept the euro in check this week and it was down 0.15 per cent against the dollar in morning trade in Europe.
“Maybe tomorrow’s ECB meeting sees nothing but platitudes and disappoints a market that is getting ahead of itself,” said Societe Generale analyst Kit Juckes, “But (for us) that would be a huge euro buying opportunity, because ECB normalisation IS coming. And when it does, the euro simply won’t be able to sustain undervalued levels for long.”
European blue chip shares had risen by 0.1-0.2 percent by 0850 GMT and Madrid’s IBEX recovered from early losses to trade flat on the day. European banking shares rose 1.2 percent. Oil prices, however, were again almost 1 percent lower and the flood of money into the perceived security of Japan’s yen this week continued. It was up another 0.2 percent at 109.17 yen per dollar – a 7-week high. The greenback has lost more than 1 percent so far this week, pressured by a sharp drop in U.S. Treasury yields to seven-month lows.