European Debt Crisis

A new dawn after yesterday’s market lows

David Brancaccio Apr 11, 2012

David Brancaccio: Coming off Tuesday’s worst showing for stocks this year — both in the U.S. and Europe — there is a new dawn today. Market players are showing a renewed appetite for risk, including stocks, at least so far on this Wednesday.

Joining us from London is James Knightley, senior international economist at ING. Good morning Mr. Knightley.

James Knightley: Good morning.

Brancaccio: Now you were of the mind that a correction was a bit overdue here coming into the week.

Knightley: Yeah, I think some of the recent activity data haven’t been as good as people have been hoping. We’ve had a good run, and then we’ve seen something of a plateau in some of the data. And then some actual softness, such as the U.S. labor report last Friday.

Now, as you say, in terms of today, the situation’s looking a lot healthier. There is ongoing stimulus in the global economy; unemployment is starting to come down in some of the key places such as the U.S. We’ve had some positive comments from some of the central bankers in Europe, suggesting that they could actually buy Spanish bonds once again. And that has helped support the Spanish bond market, the Italian bond market; and the general risk environment’s a little bit more relaxed this morning.

Brancaccio: Because earlier this week, those Spanish banks are what was keeping some investors up at night.

Knightley: Yes, that’s right. The balance sheet at some of these banks is somewhat worrisome. They’ve got big mortgage books, and Spanish property is something of a concern — especially given the high levels of unemployment. I think youth unemployment in Spain is pushing up towards 40 percent now. So there are worries about bad loans and therefore what that means for the future on some of the profits of the Spanish banks. Now, a lot of their banks’ balance sheets are also tied up in the sovereign debt, and if we can’t get some positive new sign on the sovereign debt story in Spain, that perhaps eases some of those concerns about some of the Spanish banks.

Brancaccio: James Knightley at ING in London. Thank you very much for the time.

Knightley: My pleasure.


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