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Friday, 25 April 2014

Football gives Spain a little 'feel good' factor

Many congratulations to the Spanish football team on winning the European Championship so emphatically – may we remember to toast the squad and the coaches but at the same time remind ourselves that the rest of Spain contributed no more towards the victory than we did, namely they watched it on the television.

Anthony Peters, SwissInvest Strategist

The 5.66% rally which we saw on Friday in the IBEX index of leading Spanish stocks had no more to do with the boys bringing the cup home than the 6.59% rally in Italian equities had to do with their side’s rather clear defeat. Beware of anything which markets may put down to a feel good factor. Olé!

However, a feel good factor certainly came from the eurozone summit where there was a whooping and a hollering generated by the sense that Chancellor Merkel has softened her stance towards the bailing out of banks by the collective rather than by the individuals.

This might be a fine and altruistic act of spreading the pain around but it carries huge risks with it and is as popular in Germany as dog’s doo-doo on the drawing room carpet. The critical breakthrough is the ability of the central eurozone bail-out funds to support faltering parts of banking system while by-passing the national accounts of the countries in question – mainly Spain, Italy and Cyprus – but at the same time it will have redefined the “ire” in Ireland as its people will be wondering where they are now left.

What a shame for the Irish that their country is not too big to fail. The socialisation of the Spanish banking crisis might have taken some of the immediate pressure off markets but not a penny of debt has been repaid nor has a single finished but unsold housing unit in Spain found a new buyer. If so, then it is 1 down, 799,999 to go.

It will be interesting to see if investors are convinced enough to reward the summit’s outcome with a revived bid for Spanish and Italian banks. Banking stocks certainly leapt on Friday, and on pretty generous volumes too, but I will be looking for sustained stability in both senior and junior subordinated debt before I feel a proper sense of relief.

There must be some relief to hear that the ECB is set to assume eurozone-wide oversight responsibilities but in the same way in which most countries paid no more than lip-service to the Maastricht Treaty and in the end not even that, I wonder whether another European super-agency, even if it is the ECB and based in Frankfurt, will be able to control a playground full of unruly children.

Finally we might be able to focus on some of the more fundamental economic releases this week which begin today with the purchasing managers’ reports from Europe and the US and end on Friday with the Labor Department’s employment report. Hard to call a market so I will remain stumm and spend my week wondering how the hell people are going to get to work during the Olympics having seen the markings for the “Olympic Lanes” on the roads this morning. Perhaps that will be another case of applying the trading rule of “If in doubt, stay out”.                                     

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