Market welcomes Spain bank bailout deal as European share rises

Spain’s 100bn euro banking bailout at the weekend restored the confidence in global market as the world saw the rise in stocks on Monday.

The deal prompted a rise in shares in London and major European market with the euro reaching a three-week high, at $1.2630.

The morning data showed the FTSE 100 in London rose 1.4%, the Dax in Frankfurt and Cac 40 in Paris was up 2.1% and 2.2% respectively while Spain’s Ibex index in Madrid was up 3.8%.

The euro also gained more than one cent against the US dollar as the deal sent a sigh of relief among investors who returned back to the single currency with new faith.

The morning figure also revealed a drop in Spain’s ten-year bond yields 6.227% to 6.049% alongside the Italian bonds which fell from 5.966% to 5.648%.

Despite investors rallying back into the European market, experts have warned that uncertainty still remained among them as they are yet to see how the Spanish deal will work.

He said: “Equity investors are breathing a huge sigh of relief as European indices jump on the open and even higher than our original estimates however there are still lots of unanswered questions about how this particular bailout will work and then of course whether it will prove to be the right solution.

“If history is anything to go by we have seen that bailing out banks doesn’t work in the short term as we only have to see the struggling share prices of our own nationalised banks.”

The decision on the exact amount of emergency funding for Spain will be decided later this month after two audits of its banks are completed.

Spain is in its second recession in three years and its economy is expected to shrink by 1.7% by the end of the year.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers said: “The Spanish announcement is not a solution to the eurozone’s ongoing woes, but it is a statement of intent.

“Despite the fact that details to date have been sketchy on the ultimate resolution of the European crisis, one constant has been a declaration by the authorities that the area will remain intact.

“Some much-needed time has now been bought in Spain, which will allow the market at least temporary sigh of relief.”

Rajeeb Gurung