A smoothly executed rescue of Spain’s struggling Banco Popular lifted European bank stocks yesterday, while US stock and bond investors showed caution ahead of today’s British vote, an ECB meeting and testimony by ex-FBI chief James Comey.
Oil prices dipped on renewed concerns about the efficacy of Opec-led production cuts and a Mideast political rift, then extended losses after EIA data showed a surprise build in US crude inventories.
US crude fell 4.21 per cent to $46.16 per barrel and Brent was last at $48.37, down 3.49 per cent on the day.
In Spain, the absorption of Popular by the country’s biggest bank Santander for a nominal one euro was the first use of a regime to deal with failing banks adopted after the 2008 financial crisis, and made barely a ripple in Europe’s stock and debt markets.
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.
European banking shares rose 1.38 per cent.
“The market has taken Banco Popular as positive news because essentially this is not a bankruptcy but a sort of rescue, even if its subordinated bondholders have been sharply hit,” said Giuseppe Sersale, a fund manager at Anthilia Capital in Milan. The bank rescue does, however, underline 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 today.
The pan-European FTSEurofirst 300 index rose 0.13 per cent and MSCI’s gauge of stocks across the globe gained 0.04 per cent.
The euro turned shaky after reports suggested the ECB would lower its inflation targets. It was last down 0.23 per cent to $1.125.
“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.”
The ECB meeting is one of three events that ING currency strategist Viraj Patel said had been dubbed ‘Triple Threat Thursday,’... an event-filled day that could send global markets on a bumpy ride.”
Today there is a closely-fought British election and US Senate testimony from James Comey, the former FBI chief fired by President Donald Trump. Any damaging revelations in Mr Comey’s testimony are likely to hurt Mr Trump and take the wind out of his plans to roll back regulations and overhaul the tax system – an agenda that had sent the dollar to 14-year highs earlier this year.