London View

Markets React to Portugal's Economic Woes

European stock markets rose on Friday, after Thursday’s losses which were sparked by Portuguese banking sector woes as well as some poor Euro-zone economic data.

The Stoxx 600 rose 0.4% while the UK’s FTSE100 is up 0.5% and the DAX in Germany is higher by 0.6%. Peripheral euro zone benchmarks attempted to rebound from previous session falls – Portugal’s PSI 20 is up 1.7% while Spain’s Ibex 35 is up 1% and Italy’s FTSE MIB is higher by 1.2%.

Asian shares were mostly mixed overnight after stocks on Wall Street ended lower on Thursday. The S&P 500 closed down 0.4%, to 1,964.71 while the Dow Jones Industrial Average fell as much as 180 points at session lows, but ended the day down 70.35 points, or 0.4%, at 16,915.20. In Asia, South Korea’s Kospi Composite fell 0.7% and Japan’s Nikkei 225 declined by 0.3%. The Hang Seng index in Hong Kong is down 0.3% and the Shanghai Composite is up 0.3%.

As Portugal’s biggest lender, Banco Espirito Santo’s failure to make payments on short-term paper underlined the fragility in the Euro-zone, particularly at a time when economic growth seems to be stalling. Banco Espirito Santo has now disclosed an exposure of €1.18 billion, but moved quickly to say that potential losses on loans to the troubled Espirito Santo family group will not put its solvency at risk. That hasn’t really soothed the market which remains cautious about the situation in Portugal – the spectre of the return of the debt crisis together with worries about deflation have combined to tarnish the outlook for the Euro-zone.

Looking ahead today, there’s little on the economic agenda, though next week the US Earnings Season gets into full swing, with Goldman Sachs, JPMorgan, Citigroup and Johnson & Johnson all reporting earnings.