Markets await word on Spain bailout

THE EURO continued its strong performance against the US dollar on the expectation that Spain will make an imminent request for a sovereign bailout, but major markets declined over uncertainty as to when that would happen and unease about the performance of companies in the third quarter.

A Spanish application for a bailout is viewed as positive by the markets as it would trigger the purchase of Spain’s bonds by the European Central Bank to lower the country’s borrowing costs.

European officials said a bailout could happen as early as this weekend, although this was denied by Spain’s prime minister Mariano Rajoy as Germany signalled that Madrid should hold off.

DUBLIN

THE ISEQ rose almost 1 per cent on a day of flat performances for the main stocks on the market and a quiet day of trading. One trader said there was little or no news concerning Irish stocks.

Buildings materials group CRH, the biggest stock on the market representing about a quarter of the index, fell by just one cent to €14.82 a share, while Ryanair rose by 0.3 per cent to €4.47.

Packaging group Smurfit Kappa climbed 1 per cent over the €8 mark, closing at €8.04 after new data showed higher demand and pricing for paper.

The biggest mover on the day was fruit company Total Produce on the junior Enterprise Securities Market, which climbed almost 7 per cent to 47 cents a share.

Swiss-based food group Aryzta increased 2.6 per cent to €38 as the company’s annual report showed that chief executive Owen Killian’s pay fell from €7 million last year to €3.9 million for the year to the end of July.

Bank of Ireland’s share price remained unchanged at 9.8 cents, slightly under the figure at which the bank raised capital from shareholders last year.

Irish nominal borrowing costs fell yesterday as the yield or interest rate on the Government’s benchmark 2020 bond fell 0.03 per cent to 5.074 per cent.

UK

SHARES IN London fell sharply after Swiss bank UBS downgraded its recommendations for British banks, including Royal Bank of Scotland and Lloyds.

Part-nationalised lenders Royal Bank of Scotland and Lloyds fell 3.3 per cent and 2.5 per cent respectively after UBS said that the banks may need to raise further capital from investors.

Declines in banking and mining shares outweighed gains for companies such as Babcock and Tesco.

The FTSE 100 lost 0.2 per cent on a big-swing day, gaining as much as 0.3 per cent and declining as much as 0.7 per cent. The index has swung in a 100-point range over the last five days and has registered gains of just 0.8 per cent over the last month.

Investor appetite for risk assets continues to waiver amid concerns about Spain w if global economic growth can be sustained.

Shares in Tesco and Sainsbury rose ahead of the results being published for the two retail giants.

EUROPE

SPAIN’S 10-year bonds advanced for a fourth day, the longest run of gains in three weeks, over speculation it is preparing to seek a sovereign bailout that would trigger ECB purchases of its debt.

Mr Rajoy denied a report saying a request for European aid could happen by the weekend that would lead the ECB to start buying the country’s bonds. European officials told Reuters late on Monday that Spain could apply for a bailout as early as this weekend.

“The market thinks that Spain asking for aid is just a matter of time,” said Anders Moeller Lumholtz, a Danske Bank analyst. “This would be positive for the bonds and we see it happening within the next couple of weeks.”

Spain’s 10-year bond yields fell 14 basis points, or 0.14 percentage point, to 5.74 per cent.

US

WALL STREET ended little changed in a volatile session as uncertainty over a Spanish bailout shackled the market struggling to build on gains that took the SP 500 to its highest in nearly five years.

Weaker-than-expected results from Mosaic added to worries about the upcoming third-quarter earnings period. Mosaic shares fell 3.9 per cent to $55.76. Vanguard, the largest US mutual fund manager, said it was switching 22 of its biggest index funds away from benchmarks provided by MSCI to cut costs. MSCI shares fell 26.8 per cent to $26.21.

Chipotle Mexican Grill shares fell when hedge fund manager David Einhorn said the restaurant chain would face significant competition and additional costs, making it an attractive “short”. The stock fell 4.2 per cent to $302.96.

General Motors shares rose 2.6 per cent to $23.68. Car companies reported September sales, with General Motors and Chrysler up posting gains while Ford remained flat. Ford shares lost 1.4 per cent to $9.79.

PetSmart shares added 1.5 per cent to $68.55 after SP Dow Jones Indices said after Monday’s close that the company would replace Sunoco in the SP 500 tomorrow. – (Reuters)