Irish bailout gets lukewarm market response
Monday, November 29, 2010
LONDON (AP) — The 67.5 billion bailout of Ireland has done little to assuage investor concerns that Europe has finally got a grip on its debt crisis, with European stocks trading mostly lower Monday and the euro hitting a fresh two-month low.
The FTSE 100 index of leading British shares was down 3.25 points, or 0.1 percent, at 5,685.45, while Germany’s DAX fell 28.98 points, or 0.4 percent, at 6,820. The CAC-40 index in France was 17.11 points, or 0.5 percent, lower at 3,711.54.
Wall Street was poised to open higher — Dow futures were up 31 points, or 0.3 percent, at 11,061, while the broader Standard & Poor’s 500 futures rose 3.9 points, or 0.3 percent, to 1,187.30.
The focus in the markets, at least in Europe, remains on the debt crisis, which led to Ireland being bailed out Sunday by its partners in the European Union and the International Monetary Fund.
The EU’s finance ministers agreed in an emergency meeting in Brussels to give Ireland a 67.5 billion ($89.4 billion) bailout to help it survive its massive banking crisis, and sketched out new rules for future emergencies to restore faith in the euro currency.
Ireland, which became the second eurozone country after Greece to be rescued, will use a large chunk of the money — 10 billion immediately — to shore up the financial positions of its banks. More is available for the banks and day-to-day government spending, if required.
EU policymakers will be hoping that the latest rescue will help contain the crisis and prevent it from spreading. Portugal and Spain are thought to be the two countries most at risk from this contagion. A Spanish bond auction on Thursday will be closely monitored for a gauge of investor sentiment following the Irish bailout.
So far, the response, in Europe’s markets in particular, has been muted.
“The Irish bailout deal may have had the potential to remove one potential headache from the global economic agenda, but markets are now worrying about which eurozone economy will tumble next,” said Chris Weston, research analyst at IG Markets.
These uncertainties are clearly evident in the performance of the euro, which was trading 0.6 percent lower on the day at $1.3208. Earlier, it had fallen to a low of $1.3183, its lowest level since Sept. 20.
Meanwhile, in the bond markets the reaction has been subdued, with the yield on Spanish 10-year bonds unchanged at 5.19 percent, and Portugal’s modestly lower at 6.93 percent.
A key concern is that the political situation in Ireland remains extremely fluid.
Elections are due to be held in early 2011, and all indications are the opposition will win and could seek a renegotiation of the bailout. Before the election, the embattled Irish government will have to pass a budget for 2011, and that’s not going to be easy to push through with its majority cut to two.
“There are still uncertainties as regards a successful implementation of the budget plan,” said Neil MacKinnon, global macro strategist at VTB Capital.
In addition to grappling with developments in Europe’s debt crisis, investors have a number of key economic releases to digest, not least Friday’s closely watched U.S. nonfarm payrolls report for November. Before then, the monthly surveys into the U.S.’s manufacturing and services sectors from the Institute for Supply Management have the potential to move markets.
In addition, there are interest rate decisions from the European Central Bank and the Bank of England on Thursday. Neither is expected to change borrowing costs, but investors will be particularly interested in what the ECB President Jean-Claude Trichet says in his media briefing Thursday about Europe’s continuing debt problems.
Earlier Monday in Asia, Japan’s Nikkei 225 stock average added 0.9 percent to close at 10,125.99, buoyed by a stronger dollar, as the yen retained a fairly soft tone against the dollar to the relief of the country’s major exporters.
By midmorning London time, the dollar was up another 0.1 percent at 84.07 yen.
Meanwhile, South Korea’s Kospi fell 0.3 percent to 1,895.54 amid ongoing tensions between the country and North Korea following last week’s exchange of artillery.
Australia’s S&P/ASX200 index rose 0.4 percent, to 4,618.5, and Hong Kong’s Hang Seng index climbed 1.3 percent to 23,166.22.
Chinese shares were mixed as cautious investors watched for fresh moves to tighten monetary policy and counter inflation. The benchmark Shanghai Composite Index gave up 0.2 percent to 2,866.36. The Shenzhen Composite Index of China’s smaller, second exchange gained 0.5 percent to 1,339.31.
Benchmark oil for January delivery was up 60 cents to $84.36 a barrel in electronic trading on the New York Mercantile Exchange.
Associated Press writer Pamela Sampson in Bangkok contributed to this report.