Monday 23 October 2017

Qatar adds to 'triple threat Thursday' market jitters

Passengers of cancelled flights wait in Hamad International Airport in Doha, Qatar (AP)
Passengers of cancelled flights wait in Hamad International Airport in Doha, Qatar (AP)

A smoothly executed rescue of Spain's struggling Banco Popular drove European banking stocks higher on Wednesday in financial markets dominated by caution ahead of a trio of major events today.

The absorption of Popular by Spain's biggest bank Santander for a nominal one euro was the first use of a regime to deal with failing banks adopted after the 2008 financial crisis and made barely a ripple in Europe's stock and debt markets.

As the morning wore on the success of the process pushed shares in many major European banks higher, supporting a recovery for Madrid's stock market and fending off this week's broadly weaker mood.

"The market has taken Banco Popular as positive news because essentially this is not a bankruptcy but a sort of rescue, even if its subordinated bondholders have been sharply hit," said Giuseppe Sersale, a fund manager at Anthilia Capital in Milan.

"The fall in subordinated debt at other Spanish banks today lasted just around one hour.

"It's seen positively because it draws a line under (the problem) involving only risk capital."

In Dublin, both Bank of Ireland (-2.155pc) and AIB (-7pc) were weaker, however.

While avoiding market dislocation, the Popular rescue does underline the risks to growth, banking and government debt burdens that are likely to delay a major switch in language and policy direction by the European Central Bank at its meeting today.

The euro fell half a per cent against the dollar in morning trade in Europe, spurred by a Bloomberg report that the ECB, instead of flipping towards tighter policy, would cut its inflation forecasts today.

Today's surprisingly closely-fought UK election is weighing on investors' minds along with US Senate testimony from James Comey, the former FBI chief fired by President Donald Trump.

"(Today) is what is being dubbed as 'Triple Threat Thursday', an event-filled day that could send global markets on a bumpy ride," said ING currency strategist Viraj Patel.

Meanwhile, oil prices dipped on Wednesday on renewed concerns about the efficacy of OPEC-led production cuts due to rising tensions within the export group over Qatar and growing US output.

Brent crude prices were at $49.70 per barrel, down 42 cents. Saudi Arabia and the United Arab Emirates cut diplomatic and transport ties with Qatar in a major rift between the Gulf monarchies that dominate oil and gas production. (Reuters)

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