http://www.telegraph.co.uk/finance/debt-crisis-live/9235645/Debt-crisis-live.html
Between them, BBVA (€2bn) and Santander (€3bn) [Spain's largest banks] bought only a net €5bn of Spanish bonds in Q1. With Spanish banks overall having likely bought something around €80bn of domestic government bonds since the start of December, that means that Spanish banks’ government bond buying has been overwhelmingly tilted towards smaller banks. That seems likely to continue, with press reports this week suggesting that BBVA and Santander risk managers had no appetite for further Spanish bond purchases, and both banks having characterised their LTRO borrowing as liquidity insurance.
The news that the Spanish economy contracted by 0.3% in the first quarter of the year after a 4Q contraction of 0.3% puts the economy back into recession (two quarters of negative gdp). Although the figure is not quite as bad as forecast of a 0.4% fall, do not get carried away with optimism – I believe that Spain is close to imploding under austerity and a property bust. It is following Ireland but without the benefits of a reformed and pro business economy.
A quiet start to what could be an important week for the markets. Tomorrow is the Labour Day holiday in most of Europe, and it is quite likely that many participants will create a long weekend out of it. But today has not been without incident, with Spain again the centre of attention. Spanish Q1 GDP came in at -0.3%, slightly better than expected but confirming the technical recession. S&P followed up its downgrade of Spain by cutting the ratings of 11 Spanish banks. This was no great surprise and has had little impact on spreads. A press conference held by the Spanish government this afternoon will be worth watching.
The economy of our country is going through critical times. The right handling is required. At stake is not only the economy of Cyprus and the well-being of its citizens, but its national reputation and standing.
It is possible to reconcile the good governance of public budgets with growth. This is the challenge of this moment. I advocate that we prepare in addition to the contracts for fiscal discipline, a European initiative for growth. In the short term effect, for example, would be to extend the funding through the European Investment Bank.
...the factors behind the lowering of the long- and short-term sovereign ratings on Spain could have an impact on our view of the economic risk and industry risk affecting the Spanish banking system, and on our opinion of the specific rating factors (business position, capital & earnings, risk position, and funding & liquidity) driving our assessments of these banks' SACPs. Consequently, we have placed on CreditWatch negative most of our issuer and issue ratings on Spanish banks that were not already on CreditWatch [...] The CreditWatch status for these banks now also includes the potential impact of our possible revision of economic risk and industry risk factors affecting the banking system.
11.47 Analysts at JP Morgan noted last week that Spanish banks’ government bond buying has been "overwhelmingly tilted towards smaller banks". In other words - the country's bonds are largely being propped-up by its smaller banks. More from JP Morgan's global asset team:
Between them, BBVA (€2bn) and Santander (€3bn) [Spain's largest banks] bought only a net €5bn of Spanish bonds in Q1. With Spanish banks overall having likely bought something around €80bn of domestic government bonds since the start of December, that means that Spanish banks’ government bond buying has been overwhelmingly tilted towards smaller banks. That seems likely to continue, with press reports this week suggesting that BBVA and Santander risk managers had no appetite for further Spanish bond purchases, and both banks having characterised their LTRO borrowing as liquidity insurance.
11.41 Some reaction to this morning's recession news and bank downgrades in Spain:
Louise Cooper at BGC Partners said:
The news that the Spanish economy contracted by 0.3% in the first quarter of the year after a 4Q contraction of 0.3% puts the economy back into recession (two quarters of negative gdp). Although the figure is not quite as bad as forecast of a 0.4% fall, do not get carried away with optimism – I believe that Spain is close to imploding under austerity and a property bust. It is following Ireland but without the benefits of a reformed and pro business economy.
...while Gavan Nolan at Markit said:
A quiet start to what could be an important week for the markets. Tomorrow is the Labour Day holiday in most of Europe, and it is quite likely that many participants will create a long weekend out of it. But today has not been without incident, with Spain again the centre of attention. Spanish Q1 GDP came in at -0.3%, slightly better than expected but confirming the technical recession. S&P followed up its downgrade of Spain by cutting the ratings of 11 Spanish banks. This was no great surprise and has had little impact on spreads. A press conference held by the Spanish government this afternoon will be worth watching.
10.59 Cyprus is at a "critical" juncture, according to the governor of its central bank. Athanasios Orphanides, who steps down next month, told legislators in parliament:
The economy of our country is going through critical times. The right handling is required. At stake is not only the economy of Cyprus and the well-being of its citizens, but its national reputation and standing.
Ratings agency Fitch warned last week that the "interconnectedness of the Cypriot banking system and the Greek economy has made Cypriot banks vulnerable to developments in Greece," while Moody's predicted that the government would need to pump up to 10pc of GDP back into its ailing banks to restore capital ratios following the Greek debt writedown.
Cyprus is one step away from being relegated to the eurozone junk pile. The country is already regarded as below investment grade by Standard & Poor's and Moody's. Fitch rates Cyprus at "BBB" - just above junk.
10.28 It's a tale of two high streets this morning. Retail sales in Germanygrew by 0.8pc on a monthly basis in March, compared with a revised fall of 0.9pc in February. On an annual basis, sales are up by 2.8pc.
Meanwhile, annual sales in Greece fell by 11.1pc (!) in February. The chart below (courtesy of Reuters) says it all.
10.01 Michel Barnier, the EU commissioner responsible for internal market affairs, has joined the chorus of voices calling for growth measures in the eurozone. In an interview with Germany's Die Welt, he said:
It is possible to reconcile the good governance of public budgets with growth. This is the challenge of this moment. I advocate that we prepare in addition to the contracts for fiscal discipline, a European initiative for growth. In the short term effect, for example, would be to extend the funding through the European Investment Bank.
09.42 M3 money supply - the broadest indicator of how much cash is swirling around the eurosystem, saw annual growth of 3.2pc in March, according to latest figures from the European Central Bank.
However, growth in loans to households and companies grew by just 0.6pc compared with a year ago. The ECB said that the annual growth rate of mortgage lending, the most important component of household loans, decreased to 1.1pc in March, from 1.8pc in the previous month.
09.21 Europe's crisis is also bringing out extremists on both sides of the political spectrum. Following the rise in popularity of Marine Le Pen'sFront National party in France, two political mavericks in Greece are gaining traction among voters ahead of elections this week.
Economist Panos Kammenos, described as a "firebrand nationalist" by the Wall Street Journal, and "soft-spoken former Communist" Fotis Kouvelis could command almost 20pc of the vote on Sunday, according to the WSJ.
Their rise is cutting deeply into support for Greece's two mainstream parties - the conservative New Democracy led by Antonis Samaras, and the socialist PASOK party, led by former finance minister Evangelos Venizelos.
08.33 Standard & Poor's also downgraded 11 Spanish banks this morning - including two to "junk" - following Spain's sovereign downgrade last Thursday.
Banca Civica, which was recently taken-over by Caixabank, and Banco de Sabadel were cut by one notch to "BB+" - meaning they are now rated below investment grade.
Santander was also cut by two notches to "A-" from "A+". However, the bank is rated higher than Spain itself, which has a credit rating of BBB+.
In a statement, S&P said:
...the factors behind the lowering of the long- and short-term sovereign ratings on Spain could have an impact on our view of the economic risk and industry risk affecting the Spanish banking system, and on our opinion of the specific rating factors (business position, capital & earnings, risk position, and funding & liquidity) driving our assessments of these banks' SACPs. Consequently, we have placed on CreditWatch negative most of our issuer and issue ratings on Spanish banks that were not already on CreditWatch [...] The CreditWatch status for these banks now also includes the potential impact of our possible revision of economic risk and industry risk factors affecting the banking system.
08.05 BREAKING
Spain is back in recession. The economy contracted by 0.3pc in the first three months of the year, plunging Spain into a technical recession after gross domestic product (GDP) fell by 0.3pc in the fourth quarter of 2011.
The quarterly contraction is less than the 0.4pc expected by economists polled by Bloomberg, but it's official - Spain is in a double dip.
07.35 The unrest continues. Thousands took to the streets in Spain on Sunday to protest against health and education cuts. Demonstrators held up signs calling on Spaniards to defend their rights so the government "won't finish everything," while some said that the austerity cuts would create an "apartheid in health services".
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