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Spain's stock market chaos a 'necessary adjustment'

MARKET BLOG: Hedge fund manager Man Group advances on cost-cutting, but wider markets fall again.

 
Spain's stock market chaos a 'necessary adjustment'

16.31: How much money will Spain actually need if, as looks increasingly likely, a sovereign bailout is needed?

Jonathan Loynes of Capital Economics explains thus: The packages for Greece, Portugal and Ireland were intended to fully cover those countries’ total financing needs for between 18 months and two years, and partially cover their needs for another year or so. A similar package covering Spain’s needs until the end of 2013 and half of those in 2014 would cost about €200 billion. Extending the programme by a year would raise that to €300 billion.

Assuming the IMF puts up a third of that, once the temporary EFSF bailout fund is exhausted, and remembering the €100 billion already earmarked for Spanish banks, the ESM (permanent bailout fund) could be left with just €200 billion, Loynes reckons.

That does not leave much in the pot for any other European countries that might come begging. Charts from Capital Economics

How much does Spain need?: Click to enlarge

Third Spanish region to seek aid

14.50: The Spanish region of Catalonia has confirmed that it will go to the central government for a bailout to pay off its debts, following Valencia and Murcia in requesting state aid, according to press reports.

The southern Spanish region of Andalucía, meanwhile, intends to avoid state aid by negotiating a private loan of €800 million, according to the Spanish press.

Spain’s borrowing costs have been elevated all day, with yields on 10 year government bonds at near 7.6%, while the stock market is down 2.3%

US markets, meanwhile, have opened lower, tracking losses across Europe. There is little economic news to distract investors from Europe's problems, though data from Markit (the ‘flash’ PMI)  indicated the weakest improvement in US manufacturing sector business conditions in 19 months.

BP in talks with Rosneft over Russian stake sale

12.51: Investors who are still waiting patiently for BP (BP.L) to recover fully more than two years after the Gulf of Mexico oil spill cut the oil major’s share price in two will have been pleased this morning with news of fresh talks to sell its stake in Russian joint venture TNK-BP.

BP confirmed to the market it would begin negotiations with Rosneft, the Russian state oil company, for the potential purchase of BP's 50% shareholding in TNK-BP, which will take place alongside negotiations with BP’s joint venture partner in TNK-BP, AAR .

Analysts greeted the news positively. ‘The emergence of Rosneft as a potential bidder is good news as it provides some competitive tension in the sale process that should lead to a stronger price realisation for BP’s stake in TNK-BP,’ said Richard Griffith of Oriel Securities.

Andrew Whittock of Liberum added: ‘This raises the probability of an exit for BP at a reasonable value, and looks good news.’

Shares in BP moved 0.4% higher to 432p on a falling FTSE 100.

Germany to Moody's: we will defend our safe-haven status

12.25: The German government has come out fighting after Moody's turned negative on the nation on fears of a meltdown in the eurozone.

In an emailed statement the Finance Ministry said: 'Germany will, through solid economic and financial policy, defend its "safe haven" status and continue to maintain its responsible anchor role in the eurozone. Together with its partners, it will do everything to overcome the sovereign debt crisis as rapidly as possible.'

The statement came after Moody’s downgraded its rating on Germany, along with the Netherlands and Luxembourg, from stable to negative.

The downgrade also prompted an emailed response from Luxembourg's Jean-Claude Juncker in which he said Germany, the Netherlands and Luxembourg continue to enjoy 'sound fundamentals'.

'Against this background, we reiterate our strong commitment to ensure the stability of the euro area as a whole,' Juncker said.  

Spain's stock market chaos a 'necessary adjustment'

11.54: As Spanish bonds and shares continue to suffer, Alice Gaskell, who invests in Europe for BlackRock, says the only thing that surprises her is that the country’s stock market wasn’t punished sooner.

Asked whether the market reaction since Friday has been justified – with 10-year government bond yields today hitting a new high of nearly 7.6% and the Ibex down 2.5% – Gaskell said ‘there have been structural issues bigger than the market has been perceiving’.

‘This is a necessary adjustment to reflect the real mess that the Spanish economy is facing… it's just a lag.’

Gaskell, who runs the BlackRock Continental European Income fund, said she had been underweight Spanish equities for ‘a very long time’, but after recent sharp falls that prompted the market regulator to ban short selling yesterday, ‘they are maybe just getting into cheap territory’.

Gaskell was reluctant to commit on what form a bailout Spain might take. ‘Spain needs more capital. Where will that come from? That’s what we don’t know. They need more cash.’

Meanwhile, Britain's FTSE 100 is slightly lower at 5,529, the euro is down 0.2% at $1.208 and the Brent crude oil price is flat at $103 after yesterday's sharp falls.

Man Group shares jump 10% on further cost cutting

09.15: Man Group's battered shares jump 8% after the hedge fund manager unveils a second round of cost cuts as it battles with investor outflows and falling assets under management.

The shares (EMG.L), which have fallen 40% this year, rose 6p to 75p as the company sought a further $100 million in savings on top of $95 million it announced in March.

The company said clients had withdrawn a net $2.4 billion in the six months to the end of June. The outflows combined with falling stock markets meant funds under management fell to $52.7 billion from $59 billion at the end of March.

Chief executive Peter Clarke (pictured) said: 'We are confident that the changes we have announced today, together with the progress we have already made, position us well to protect and rebuild shareholder value.'

Provident Financial (PFG.L) leaped nearly 9% or £1.03 to £12.76 as the Bradford-based consumer credit company reported a 17% rise in half year profits to £72.9 million. It was helped by a good performance at Vanquis Bank, its online division serving customers who can't get loans from banks, where profits rose 60% to £28.2 million.

Meanwhile International Personal Finance (IPF.L), a member of Citywire Top Stocks, which spun off from Provident a few years ago, advanced over 4% or 9.7p to 246p after it said it was on track to perform well this year.

Pace overcomes Thai floods

Pace (PIC.L), the maker of set-top boxes for broadcasters, leaps 13% or 15p to 129p after reassuring investors over the impact of the floods in Thailand. The floods affected Western Digital, its hard drive supplier, but the problems are not as bad as feared and the company has raised its outlook for the year, saying revenues will be flat but that operating margins will be over 7%.

The shares have soared 79% this year, valuing the company at £395 million, after it suffered a series of profits warnings last year that led to the departure of the chief executive in December.

Croda lifts dividend by 8%

Croda International (CRDA.L) gained 1.6% or 37p to £22.67 after the specialist chemicals manufacturer released half-year results. Pre-tax profits rose 6.3% to £132.6 million from £124.8 million pounds a year ago, helped by an increase in sales at its consumer care division, which supplies chemicals to the healthcare, agriculture and personal care industries.

The company, which is a top 10 holding of the SVM UK Growth fund run by Citywire A-rated Colin McLean, raised its interim dividend 8.1% to 26.75 per share.

For more details on today's risers and fallers see our FTSE home page.

Markets drift as Moody's alert on Germany offset by China data

08.30: The FTSE 100 makes a hesitant start, rising 15 points, or 0.2%, to 5,548 after yesterday's 2% plunge.

Concern about the eurozone has been heightened by Moody's putting the credit ratings of Germany, the Netherlands and Luxembourg on 'negative' watch overnight.

The ratings agency cited the risk of Greece leaving the single currency, which 'would set off a chain of financial sector shocks'. The agency is also concerned about the growing cost to Germany of preserving the currency union.

Euro woes are offset, however, by China's flash factory purchasing managers' index rising to its highest level in five months in July, showing a rise in output and exports.

Crude oil markets have risen on the news, with Brent spot at $104.66 a barrel and WTI Cusing at $87.74. The euro firmed to trade €1.2119 against the dollar and the pound edged up to £1.5515 against the dollar. Gold weakened to $1,575.

European markets are drifting this morning, stunned after yesterday's fall. In France the CAC 40 has added 13 points or 0.4% to 3,114 and in Germany the Dax stirs five points higher to 6,425. The Euronext 100 firms gains just 2.6 points to 606.

In the UK Aberdeen Asset Management (ADN.L) leads the FTSE 100 with a 2.2% gain to 250p on further consideration of yesterday's results. Imperial Tobacco (IMT.L) sheds 1.3% to 195.4p after its third-quarter trading statement.

3 comments so far. Why not have your say?

David Trigg

Jul 24, 2012 at 15:23

I have an investment with GLG (part of MAN group). What are [people's views on the situation at MAN - will my holdings be adversly impacted. Uo to date trhey have performed quite well. The holding is in their Global Bond fund.

Grateful for any views.

report this

snoekie

Jul 24, 2012 at 17:45

More money into Spain, a waste of good money. They have a history of defaults, but then Lagarde is there to protect the Eurozone, which includes her home country, France, and the risk, a real one, that they will soon be centre stage, because of their loans to Greece, Spain and Italy, and then it will be the turn of Germany, because of their loans to France!

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Bloodied but unbowed

Jul 31, 2012 at 21:06

More money for Spain? Has nobody ever heard of Gresham's Law?

Lessons from more recent history.

GB is 2 years into debt recovery after years of Socialist profligacy.

Spain is into the first year of debt recovery after years of Socialist profligacy. France has just elected a Socialist President (? for 7 years) & given him a Socialist Assembly.

The Germans will probably flee back to the D-Mark when they eventually take that in.

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