The Spanish banking sector’s stock market rally has been suddenly cut short. The listed banks’ index had risen over 45% since the minimum levels of June 2016 until the first week of January. But since then, it is seeing a correction. Two matters of concern for investors are the impact of the floor clauses ruling on the banks profit and loss account, as well as the problems of the Italian banks.
Articles by Francisco López
About the Author
Every national and international economic organisation and the most trustworthy research houses agree in predicting a deceleration in the Spanish economy in 2017, due mainly to the slowdown in private consumption.
The German authorities have come out en masse to criticise the public bailout the Italian government is planning for Monte dei Paschi. For many observers, this decision implies “direct public aid” which goes against the European directive on banking solutions and restructurings.
Just minutes after the the EU ruling on ‘floor clauses’ was released, the banks in Spain’s blue-chip Ibex 35 index ended up dropping over 10%. But most of the lenders recovered ground by the end of the session. Afi estimates the ruling will affect the banking sector as a whole to the tune of some 4.5 billion euros.
Analysts are predicting a positive 2017 for European equities, not least because they are currently undervalued compared with US stocks. But there are risks on the horizon due to political instability (elections in France, Germany and Holland, plus the effects of Trump and Brexit), and uncertainty over the timing of the Fed’s rate hikes.
The markets’ reaction to the latest measures adopted by the ECB has been very positive, although not all experts believe that the era of quantative easing (QE) is coming to an end. And looking beyond the rises in equity prices, analysts are in agreement that the increased flexibility of the asset purchase programme and the reduction in the average monthly volume is prejudicial for the peripheral countries’ debt.
Someone else has fallen victim to the market: the plunge in Banco Popular’s shares has led to Ángel Ron being replaced as the bank’s chairman. But apart from the stock price’s ups and downs, Popular’s new chairman Emilio Saracho, former global vicepresident of JP Morgan, has a difficult task ahead.
OPEC’s first cut in production in eight years is not good news for the Spanish economy. Spain imports almost all the oil it consumes and has benefited enormously from the slump in the price of a barrel of this “black gold”. It’s estimated that every 10% drop in the price of oil allows for one-tenth of a percentage point improvement in Spanish GDP (1 billion euros). And the reverse is true when the price increases.
The Spanish market’s attention was firmly on technology company Indra on Tuesday when it’s share price plummeted 12%. One reason for the slump was its nine months to September results, which hugely disappointed analysts and investors.