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Market Blog: Spain pushed to 7% 'bailout threshold'

BT (BT.L) and BskyB (BSY.L) are at the bottom of a falling FTSE 100, after the pair secured rights to broadcast live Premier League matches.

 
Market Blog: Spain pushed to 7% 'bailout threshold'

16.51: Here is a round-up of today's markets - scroll down for more detail:

  • Spanish bond yields touch 7% high, at the ‘bailout threshold’, after country is downgraded again
  • European markets mostly fall, with Britain's FTSE 100 ending down 0.2% to 5,471
  • BskyB and BT among the biggest fallers on the FTSE after Premier League match allocations
  • Eurozone consumer price inflation dropped to a 15-month low of 2.4% in May
  • Italian borrowing costs rose at an auction of €4.5 billion new debt
  • US data points to further economic weakness, leading to calls for more QE and boosting markets with the S&P 500 and Dow both trading 0.8% higher.

15.57: Some reports of extreme cost-cutting in the Spanish press as Spanish finance minister Luis de Guindos insists that the government is taking measures to bring down the country’s borrowing costs after 10 year bond yields touched 7% earlier today.

  • Galicia, an autonomous community in north west Spain, is reportedly to group children of between six and 12 years old in the same classrooms in what critics have described as step back 40 years in the past.
  • And a few days ago we learnt that the Spanish government had lifted a ban on brothels’ advertising because of the recession.

13.56: QE, QE, QE! goes the market chant after a string of freshly published US data pointed to further economic weakness.

Inflation dropped again in May, with the consumer price index falling 0.3%. This reduces the pressure on consumers in the world’s biggest economy, but economists had expected a sharper fall.

In addition labour market data showed a rise in initial claims to 386,000 in the week to the end of 9th June. And another report showed that the US current account deficit widened to $137.3 billion in the first quarter of the year.

US stock futures pointed to a flat open, while European markets remain lower (FTSE 100 -7% at 5,444). The exceptions were hard-hit Greece and Spain, with benchmark indices up 6.7% and 0.3% respectively.

10.27: The biggest threat to the eurozone, says one of Europe’s largest asset managers, is money flowing out of the region’s banks.

Tim Drayton, economist at Legal & General Investment Management, provided this chart in a webcast this morning, adding that ‘the data is not particularly timely – we will only know about it when there are queues outside banks in the street’.

He was commenting amid reports of sharp outflows from banks in Spain and Greece in particular.

Overall, Drayton expects a ‘muddle through’ in the eurozone, with ‘policymakers doing just enough to prevent meltdown’. 

10.02: Spain’s borrowing costs have just surpassed the dreaded 7% level – the threshold seen as triggering a bailout – as investors require greater returns in exchange for risking their money. This morning 10-year government bond yields reached 7.001%, a euro-era high.

Spain is getting struck from all angles:

  • Another ratings agency downgrade pushing it to the brink of junk last night (see below)
  • Data this morning showing a 12.6% decline in house prices from a year earlier – the biggest annual decline on record
  • Numbers showing banks borrowed more from the European Central Bank in May, up to €324.6 billion from €316.9 billion in April
  • German chancellor Angela Merkel criticised Spain for an 'irresponsible decade' that led to its housing bubble

All equity markets are in the red today, with Spain’s Ibex 35 down 0.46% and the FTSE 100 faring even worse, off 0.9% to 5,433.

Please visit our full site to view this interactive chart

08.20: BT (BT.L) and BskyB (BSY.L) are at the bottom of a falling FTSE 100, after the pair secured rights to broadcast live Premier League football matches in a pair of expensive deals.  

BT secured the right to show 38 matches a season from 2013-2014 to 2015-2016, paying £246 million, while BskyB will show 116 games per season, paying £760 million.

Analysts were mixed on the implications of the deals.

BSkyB is paying 40% more for the matches than it has previously done, but cutting costs to offset this. Deutsche Bank cut BskyB’s target price to 860p from 900p. But Nomura reiterated its 'buy' rating on the upside provided by the cost savings.

Shares in the group are down 47p or 6.7%; to 648p.

Please visit our full site to view this interactive chart

Morgan Stanley said for BT, a surprise winner of match rights, ‘there is a clear upside skew to the possible rewards from the strategy’ which will see BT showing the matches on a new football-themed channel.

As the company has got first pick rights in half the available matches ‘this is a higher quality set of games than those owned by previous challengers in the space’.

Again, Nomura disagrees: 'Our main concern is that BT does not have the specialist skills to run a pay TV channel efficiently and that further investment will be required to enhance its offering.'

BT shares are down 8.3p or 3.8% to 201p. The broader FTSE 100 is off 14 points at 5,469 amid the eurozone uncertainty. 

Please visit our full site to view this interactive chart

07.58: Spanish borrowing costs have risen even higher after Moody’s downgraded the country and warned its sovereign rating could be cut further to junk.

Yields on 10-year government bonds rose above 6.9%, a new euro-era high, after the warning and downgrade to Baa3 from A3 which comes after the news of Spain’s €100 billion bank bailout.

Also last night, smaller ratings agency Egan Jones downgraded the country to CCC+ with a negative outlook.

Italian debt will also be in focus today as the country tests the market with a bond auction.

The FTSE 100 was set to open lower on Thursday morning.

Overnight in the US, the Dow Jones industrial average fell 77 points, or 0.62%, at 12,496. The Standard & Poor's 500 Index lost nine points, or 0.7%, at 1,315. The Nasdaq Composite Index dropped 24 points, or 0.86%, at 2,819.

3 comments so far. Why not have your say?

abbass hassan

Jun 14, 2012 at 14:53

I fear for my kids and their future.

report this

peter hart

Jun 14, 2012 at 16:17

As long as there is football.

report this

David Rowse

Jun 14, 2012 at 18:04

Peter

I believe that this is more or less what Marx implied about religion?

God help us all !

report this

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