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Market Blog: Spanish bank debt hits all-time high

Spain edges towards a bailout as bad bank debt reaches €170 billion; the FTSE 100 recoups some of its early-day losses.

Market Blog: Spanish bank debt hits all-time high
  • Aviva languishes at bottom of FTSE 100
  • Inflation increases to 2.5%; FTSE falls
  • FTSE 100 falls as QE momentum wanes

16.44: European markets closed down as bad debt in Spanish banks rose to an all-time high, pushing up sovereign bond yields and prompting speculation that the country may be headed for a bailout sooner than expected.

The FTSE 100 fell 0.18% or 11 points, to 5,883 and the Mid-250 index shed 1.15%, or 139 points, to 11,942.

New figures revealed bad debt in Spain’s banks has reached an all-time high, with 9.9% of their loans in arrears, up from 9.4% in the previous month.

The total amount of bad debt held by the banks rose to €169.3 billion, much more than the €100 billion earmarked for their banking bailout. Yields on 10-year Spanish bonds rose above 6% in intraday trade, to close at 5.902%.

Stateside markets remained flat: the Dow Jones Industrial Average added 0.2% to 13,580, the Standard & Poor's 500 index shed 0.18% to 1,459, and the Nasdaq Composite index took on 0.18% to 2,857.

Aviva languises at bottom of FTSE 100

10.45: Markets took favourably to Aviva (AV.L)’s plans to sell off unwanted businesses and shake up management at the firm, though perhaps too favourably for some analysts.

Oliver Steel, analyst at Deutsche Bank, downgraded the insurer from ‘buy’ to ‘hold’ with a target price of 375p.

Steel commented: ‘Aviva's share price has lifted more than 40% since its June lows. Though much of this has been driven by the improved macro backdrop, it also reflects greater confidence in Aviva itself following the unveiling of the new management strategy in July.

‘We remain strongly supportive of the group's plans; however, even if these are delivered in full, the narrowing price to earnings ratio discount to the sector now leaves little room for disappointment.’

Analysts at Bank of America Merrill Lynch also downgraded the stock from ‘neutral’ to ‘underperform’ with a target price of 360p. Aviva gave up 16.3p, or 4.5%, to 343p, falling to the bottom of the FTSE 100 in Tuesday trade.  

Inflation eases to 2.5%; FTSE falls

10.10: Inflation edged down from 2.6% to 2.5% in August, coming closer to the Bank of England's 2% target, giving consumers greater spending power.

The UK retail price index (RPI) fell from 3.2% to 2.9%, and the consumer price index (CPI) dropped from 2.6% to 2.5% in August.

Lower inflation rates could pave the way for further monetary easing from the Bank of England as last month policymaker Ben Broadbent voted against further quantitative easing on concerns about the possible contribution it could have to a rise in the cost of living.

Falling prices in furniture, healthcare, household services and clothing helped ease inflation. However, rising fuel costs and an increase in commodity prices threaten to keep the rate above tha Bank’s target of 2%.

FTSE 100 falls as QE momentum wanes

08.30: Markets continued their downward trend in Tuesday morning trade as stocks lost momentum following a boost from further quantitative easing (QE) from the US Federal Reserve and the bond-buying programme from the European Central Bank.

The FTSE 100 opened down 0.63%, or 37 points, to 5,857 points, and the FTSE 250 gave up 65 points or 0.54% to 12,016 points.

Inflation will be in the spotlight when August retail and consumer price figures are released later today.

Consumer goods group Unilever (ULVR.L) topped the FTSE 100 leader board as the shares, up 17p, or 0.75%, to £22.85, continued to benefit from yesterday's upgrade to 'buy' from analysts at UBS.

Imperial Tobacco (IMT.L) added 15p, or 0.65%, to £23.33 ahead of its interim figures on Thursday. 

    3 comments so far. Why not have your say?

    joe stalin

    Sep 18, 2012 at 13:30

    Oh please QE momentum wanes? Why? Just because we are a bit lower today? I think you may find that the markets this morning are responding to yesterday sudden sell off in the commodities and eventually an unexplained dive in the oil price which unsettled traders in other words a "mini flash crash". The market was un prepare for the amount of suppot the Fed is pumping in to system with many big funds on the wrong side. we may not keep going up in a straight line and may even trade side ways for a while but then most likely we will see sector rotation from defensives in to financials and builders. with that in mind the call on Aviva does not look too clever either.Oh and dont forget it is Options expiration on Friday.

    report this

    Roger Savage

    Sep 18, 2012 at 15:57

    Only an idiot believes statistics from a government organ...

    They're clearly manipulating figures to make a spurious case for more and more QE until they've inflated away everyone's savings.

    Before each round of QE, there's clearly a concerted campaign, through the press, to build a case for more QE and prepare the public for the same.

    It's happened on every occasion leading up to an announcement of further QE.

    Real inflation is nowhere near 2.5%. Regardless, when you consider how long inflation been above target (the mythical and elusive 2% target) and prices are still rising, it's hardly good news.

    When the official inflation target is 2%, how can 2.5% be justification for more QE?!

    report this

    alan thorburn

    Sep 18, 2012 at 16:13

    Never mind September figures will be higher to give decent pension rises again next April !

    report this

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