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One Bank Spooks Entire Global Market Place

We haven’t seen this for a while… European stocks fell heavily yesterday as reports that a Portuguese bank had missed some debt repayments spread fear through the market.

Banco Espirito Santo shares fell more than 15%, before trading on the stock was suspended, on the news that it had failed to keep up with arrears on debt – some of which was held by its clients. The wider repercussions of this act were significant, causing stock sell offs on just about every global stock index, though Europe’s were hit harder by far. Interestingly, it was the old culprits, Spain and Italy, that suffered the most investor jitters and both only just escaped a 2% fall of their leading indexes.

Athens also faced a reality check after their intentions to issue a €3bn tranche of fresh government debt on a recent wave of stability was scuppered and they only found buyers for 50% of the offering.

The beneficiaries were also the usual suspects. German government debt rallied, with yields falling to their lowest in 18 months. The Yen and the Swiss Franc also saw plenty of interest as safe havens, as did gold, which has been on a bit of a run lately and a number of analysts have highlighted $1,420 per ounce as the next stop on the chart for the metal.

Ironically for Mario Draghi, this was the news that brought some weakness to the Euro… Probably not the way that he was hoping to get it! that said, this is likely to be a very temporary rout as governments will want to ensure that their cheap funding options aren’t further jeopardised by the behaviour of their banks. Interestingly, the FT says this morning ‘currently the market chatter is about whether Mr Draghi might leave office early – perhaps to become Italy’s president – and be replaced by Jens Weidmann, president of Germany’s ultra-conservative Bundesbank’ – we’ve not heard any of this market chatter and the FT are the only ones that appear to be saying anythng of the sort, but we’ll keep our ears open.

Elsewhere in the world, Israel is preparing for an invasion of Gaza strip, as the death toll reaches 78 Palestinians. The US have reiterated Israel’s right to defend itself and want to see a return to the 2012 ceasefire agreement. However Israel are becoming impatient and the US may have to hope that Egypt can provide more locally grounded arguments as to why this shouldn’t happen. So far this hasn’t added to the Middle-Eastern risk aversion that the markets have had over Syria and Iraq of late, but further escalation almost certainly will.

Whilst President Obama is concerned about the Middle East, he’s also got a bit of a problem at home. Republican speaker John Boehner is suing the president for abuse of power. Apparently, back in 2010 the president went and changed a healthcare law without taking a Congressional vote So far Mr Obama doesn’t seem to be bothered, telling supporters in Texas “sue me, impeach me, for what, doing my job?”.

Another dilemma for the president came from Angela Merkel, who yesterday expelled the head of US intelligence from Germany, after two spying incidents took place in as many days. This follows on from last year’s revelation that the NSA were listening to her phone calls. Ms Merkel said that spying on allies is “the ultimate waste of energy”

In Asia, markets have been cautious, following on from European worries. in Australia there’s an article in the Melbourne Review worth reading entitled ‘is Australia Due for a Recession?’ which suggests that improvements in international trading conditions could be undermined by domestic policies and high house prices.

Today we’re looking at futures markets in the red and a data sheet that isn’t likely to favour Europe. That said, traders do love a bargain and most things are a couple of percent cheaper today than they were yesterday, so who knows!

Happy Friday.