Markets tense before a deadline for key banks
- on 06.30.10
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Financial markets are again under tension, as investors worried always the budgetary situation of the euro area and the funding of banks in the region that ends Thursday, so an important program refinancing established by the European Central Bank (ECB) last year.
The financial institutions in the euro area will thus have to reimburse to the ECB EUR 442 billion that they had been allocated at an auction conducted one year fixed rate of 1.0%.
Banks in the euro area, "will pay all" even though "there are some banks that are in worse situation that may be suffered," he said Tuesday, Christian Noyer, governor of the Banque de France and member of the Board of Governors the ECB.
Asked on Europe 1, he added: "We will ensure that there is no problem and that all this goes well.
On Wednesday, the eve of the deadline, the institution chaired by Jean-Claude Trichet could indeed allocate very large amounts to banks at a new tender to three months.The median estimate of analysts polled by Reuters stood at 210 billion.
"There are concerns regarding the expiry of massive liquidity facilities enjoyed by the ECB banks of member states (…) There is a real sense of uncertainty in the market today, a real lack belief, "said analyst Ben Potter IG Markets.
At midday, the main European stock markets plunged by nearly 2%.At the Paris Bourse, the CAC 40 was operating below 3500 points, registering a fall of 2.7%, while the FTSEurofirst 300 index of leading European values came close to a low of three weeks.
The index Stoxx European banking recoiled at the same time 2.5%.
TEST OF STRENGTH
But concerns are not confined solely to the equity markets, as the euro also suffers from this situation, yielding almost 0.7% against the greenback to below $ 1.22, and 1.2 % against the yen.
"The euro could find its lowest in eight years against the yen," said Hideki Hayashi, chief economist at Mizuho Securities.
These tensions are also reflected in the bond market, where the yield spreads between bonds issued by the peripheral countries of the euro area and the German securities reference widening.
The premium demanded by investors to hold Spanish titles to 10 years rather than their German counterparts has reached its highest level since June 18, to 208 basis points (bps), while those on bonds Portuguese and Irish regained the levels of May 10, respectively 332 bp and 309 bp.
The cost of protecting against a default on its debt in Spain has also increased. The "credit default swaps (CDS) to five years of the Spanish debt reached a historic high at 277 bps, according to Markit.
"Risk aversion rises.Concerns about the European banking system before the expiry Thursday liquidity facilities to one year from the ECB weigh on the market, "analysts said in a note to Markit.
This situation prompted the Spanish economy minister, Elena Salgado, has called on the ECB to raise awareness of funding needs of Spanish banks, whose health concern for investors.
Asked by a Spanish radio station, she also called for the publication as soon as possible the results of resistance testing in European banks.
The publication of the results of stress tests in 25 major European banks, is expected next month.Sources have reported to Reuters that more than 100 banks are under scrutiny during a second round of tests to assess their resilience to shocks to the financial system.