Market Commentary: European Markets positive following Portuguese bank bailout

Banco Espirito Santo SA

Over the weekend the Banco Espirito Santo SA saga appears to have reached its final destination. Portugal’s central bank took control of the bank in a 4.9 billion euro bailout. The Central Bank will move most of the assets in a new company, Novo Banco. The rescue will be financed through a Treasury loan to be repaid by the eventual sale of Novo Banco. The bailout will leave junior bondholders with the most losses.

The Portuguese Finance Ministry said that Shareholders, subordinated debt holders, board members and former board members directly involved in the most recent events, and not the taxpayers will shoulder the losses as they failed to adequately oversee the business.

Argentina

The Argentine peso is expected to suffer after the country defaulted on its obligations for the second time in 13 years last week. Currency traders expect at least a 10 percent drop in the currency. The Government is arguing that the default is a result of a legal impasse and not because of a lack of funds. Argentina failed to meet its interest obligations last week even if it has the money it owes. A US judge has barred the country from paying interest before it pays in full so called holdouts from a 2001 default.

Asia

Asian markets were little changed this morning as investors weighed the effects of a small increase in US payrolls and the Banco Espirito Santo bailout. Data last week showed that the US added more than 200 thousand jobs. The current positive employment trend is the longest since 1997; still the increase fell short of the 230,000 that analysts were expecting. The unemployment rate increased as more people entered the labor force.

The People’s Bank of China has warned that the county’s credit and money supply has increase to rapidly and has indicated that monetary policy will be less aggressive going forward. China is currently trying to balance a slowing growth trend with fears of a debt bubble.

Europe

European stocks climbed after the open from their lowest level in three months as Portugal bailed out Banco Espirito Santo SA easing contagion concerns. The Stoxx Europe 600 advanced following the second consecutive monthly decline. The index dropped 2.9 percent last week. Global equities experience one of the worst weeks this year losing over $1.2 trillion in value.

Argentina’s default, the crisis in Portugal and Russian sanction all contributed to the decline. The Sentix euro-area sentiment index this morning will provide markets with the firs indicator for this week.

This article was issued by Calamatta Cuschieri, visit www.cc.com.mt for more information.

The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

More in Business Comment