European shares turned negative on June 18 as fresh worries over debt problems at Spain and Italy wiped out initial relief from a victory for pro-bailout parties in Greece that had sparked an earlier rally on the equities markets.
The FTSEurofirst 300 index surrendered its earlier
gains and was down 0.1 percent at 992.72 points by 0855 GMT,
while the Euro STOXX 50 index fell 0.3 percent.
Spanish and Italian government bond yields rose, dogged by
concerns about Spain’s fiscal and banking problems, and Spain’s
IBEX and Italy’s FTSEMIB equities indexes fell
by 1.7 and 1.5 percent respectively, underperforming other
European markets.
“The initial reaction was too euphoric. Fundamentally, the
problems haven’t changed,” said Bastion Capital’s head of
equities Adrian Slack.
Spanish 10-year government bond yields rose 22
basis points on the day to 7.14 percent, pushing the nation’s
implied borrowing costs to their highest during the euro’s
lifetime. Greece, Ireland and Portugal were forced to seek
international bailouts soon after their 10-year bond yields
surpassed 7 percent.
Italian 10-year bond yields also rose 15 basis points to
6.08 percent. The 10-year Spanish yield premium
over Italy rose to 108 basis points, also a euro-era high,
according to Reuters charts.
BANK STOCKS FALL BACK DOWN TO EARTH
The STOXX European banking index, which had
initially risen by more than 2 percent, fell back and was down
by 1.2 percent.
Concerns over the European banking system were highlighted
by data from the Bank of Spain on Monday, which showed that
Spanish banks’ bad loans rose to 8.72 percent of their
outstanding portfolios in April, the highest level since April
1994.
Argonaut Capital Partners’ Barry Norris said it remained too
risky to buy into southern European equities and European bank
stocks for now.
“After the initial relief, markets are likely to realise
this Greek election result is unlikely to be a significant
turning point. Southern Europe and Eurozone banks remain too
risky,” said Norris, whose firm manages around 1 billion euros
($1.26 billion) worth of assets.
Analysts also cautioned that the political climate in Greece
remained uncertain given that pro-bailout parties committed to
keeping Greece within the euro zone won only a slim
parliamentary majority on Sunday.
Greece’s radical left SYRIZA bloc vowed to continue its
opposition to the painful austerity measures demanded of the
country.
“I’m not convinced that much has changed in Greece. Chasing
the markets higher at the moment would not be the best way to
play it,” said Central Markets chief strategist Richard Perry.
