Shares hit by surprise fall in GDP
IRISH shares continued to struggle yesterday, as it emerged that the domestic economy contracted in the second quarter of the year and the National Treasury Management Agency (NTMA) decided against selling the full amount of short- term debt it had planned to auction.
On the day the index fell 0.98pc, or 26.45 points, to close at 2,685.49 as shares across the board lost value.
The Central Statistics Office said that Gross Domestic Product fell 1.8pc between April and May, surprising analysts.
On top of that, the NTMA did not sell the full quota of €500m worth of short-term debt yesterday, the first time this has happened.
The yield on Irish debt with a 10-year maturity date had soared to 6.34pc last night, while the spread over German Bunds was at a record 4.1pc.
Credit Default Swaps on Ireland spiked to 487bps, meaning it would cost €487,000 to insure €10m worth of Irish debt.
Although forcing some bondholders to share the pain "may ultimately be in the best interest of the sovereign, in the very short term it causes unease in the market," said Peter Chatwell, a strategist at Credit Agricole in London. "It would damage perceptions of Irish credit risk in general."
Given the circumstances, it was no surprise that the banks were hammered for most of the day yesterday.
Allied Irish Banks fell 5.54pc to 56c, Bank of Ireland slumped 5.51pc to 60c and Irish Life & Permanent slid 4.7pc, closing at €1.38.
A measure of financial stocks on the ISEQ has lost more than 73pc in value since this time last year.
Away from the banks, oil and gas explorer Providence Resources dropped 7.69pc on profit taking after gaining 8pc yesterday.
Very few stocks could boast a gain on the day.
Drug-maker Elan led the way, gaining 1.82pc to reach €3.81, while financial software firm Norkom rose 7.14pc to 90c on continued positive sentiment following a contract win earlier in the week.
It was a bloody day around western Europe, with 17 out of 18 national benchmark indexes falling amid continued worries about the state of the Irish economy.
The UK's FTSE 100 lost 0.1pc, Germany's DAX fell 0.4pc and France's CAC declined 0.7pc. The composite Stoxx 600 fell 0.1pc.
"People massively underestimated these sovereign risks last year and it's been like opening Pandora's box," said David Hussey, head of European equities at MFC Global Investment Management in London.
"It is serious and, at some point in the future, the likes of Ireland and Greece will probably restructure their debts."
In London, pharmaceuticals struggled with AstraZeneca and GlaxoSmithKline both slipping by 1pc.