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GLOBAL MARKETS-Shares edge higher, euro flat ahead of Spain budget

by on September 27, 2012 9:58 am BST
 

Thu Sep 27, 2012 5:58am EDT

* FTSEeurofirst 300 up 0.4 percent as Spain budget looms

* Euro off 2-week low vs dollar, yen near 1-week high vs
dollar

* Commodities, gold recover as dollar index inches lower

By Marc Jones

LONDON, Sept 27 (Reuters) – European shares reclaimed some
of the previous day’s sharp losses and the euro steadied on
Thursday, amid hopes Spain’s budget could nudge Madrid towards a
rescue programme and allow the ECB to launch into a new
bond-buying plan.

Euro zone worries have roared back into focus over the last
week as the feel-good factor of recent central bank stimulus has
given way to renewed uncertainty over Spain’s willingness to
submit to a politically painful rescue programme.

European shares , which suffered their
biggest one-day fall since late July on Wednesday after violent
anti-austerity clashes and bailout doubts rattled markets, had
clawed back 0.4 percent by 0930 GMT, helping keep global stocks
in positive territory.

It followed rising Chinese equities that had pushed Asian
stocks 1 percent higher and came despite a
surprise drop in euro zone economic confidence data.

London’s FTSE 100, Paris’s CAC-40 and
Frankfurt’s DAX were up between 0.2 and 0.5 percent.
But Madrid’s IBEX was down 0.5 percent, with nervous
eyes trained squarely on Spain’s spending cut plans due later.

“The Spanish budget and whether that is linked to a request
for aid is what everybody will be looking at today,” said Aline
Schuiling at ABN Amro.

“Mr Rajoy appears to be trying to resist making the request
but, as we have seen, the yields are back above 6 percent and I
think the markets certainly have the power to force his hand.”

Spanish Prime Minister Mariano Rajoy’s government will lay
out budget figures and new spending cuts from 1200 GMT in what
is set to be a busy two days in Madrid.

New stress tests on Friday will also spell out how much more
money will be needed to strengthen its shaky banking sector and
it also faces the prospect of possible sovereign downgrade by
ratings firm Moody’s.

BOND LULL

Protests in Spain and Greece against austerity measures had
roiled markets on Wednesday, sending 10-year Spanish bond yields
back above the 6 percent threshold.

Bond markets were largely steady ahead of Rajoy’s budget.
Spanish yields were slightly lower at 6.08 percent while German
Bund futures were flat at 141.52 following solid gains
in previous sessions.

“Nothing that I read on Spain says to me that they’re going
to do the budget and then they’re going to apply for aid
straight away,” one trader said.

“And whatever numbers they put up, I would be sceptical
about them. The whole of Europe seems to think that we’re going
to return to growth next year, which I think is questionable.”

Conscious that seeking help from EU partners would carry
conditions for budget savings that would be unpopular at home,
Rajoy has said he is not sure if a bailout is needed and has
made clear he is in no hurry to ask for one.

Loans to euro zone firms fell more than expected in August,
new ECB data showed, while the European Commission’s monthly
economic sentiment survey also disappointed economists by
registering another sharp fall.

Oil prices were little changed as renewed worries over
supply disruptions from the Middle East, in particularly due to
anti-Israeli and anti-Western comments from Iran, helped keep
Brent futures above $110.

Moves in currency markets were also limited. The euro
, which has lost more than 1.6 percent over the last two
weeks, was flat on the day at $1.2850.

The dollar was a touch lower at 77.70 yen, inching
back towards a seven-month low of 77.13 yen hit on Sept. 13, the
day the Federal Reserve announced a new round of monetary
stimulus.

“In this environment, unless there is news of a Spanish
bailout, I think the momentum is for a weaker euro,” said Mitul
Kotecha, head of global foreign exchange strategy for Credit
Agricole in Hong Kong.

A bailout request by Spain could change the picture, but
that does not appear imminent, he added.

“I think eventually we’ll crack through the 200-day moving
average and move lower, with the euro/dollar likely to test
below the $1.28 level,” Kotecha said.