What’s the Story? The Pain in Spain Reins in Greece’s Gains

by CC June 18, 2012 9:18 am • Commentary


Early market relief at the future of the euro zone turned to negativity Monday, as stocks and the euro retreated and Spain’s borrowing costs pushed above the 7 percent barrier, seen by many as unsustainably high.

European and Asian markets opened immediately higher Monday after the Greek legislative election Sunday handed victory to a center-right party, New Democracy, that supports Greece staying in the currency union. That had eased fears that the country will leave the euro and unleash further turmoil on the beleaguered single currency.

But by midmorning Europe had given up those gains, with major indexes down from Friday’s close.

And although reaction from political and economic leaders was broadly optimistic about the chances for the euro zone, opinions were tempered by the size of the challenges ahead for Greece and for Europe.

Analysts said that the rise in Spanish borrowing costs reflected the fact that financial markets remained skeptical that the euro zone was addressing its fundamental problems even if a new crisis had been averted in Greece.

Calculated Risk

Here are the Spanish and Italian 10-year yields from Bloomberg. The Spanish 10 year yield is up to 7.28%, and the Italian 10 year yield is at 6.16%.

Note: The preliminary results of the independent Spanish Bank Stress Tests are due today. This is the results of the tests by Oliver Wyman Ltd. and Roland Berger Strategy Consultants.

On Thursday, June 21st, there is a meeting of the euro zone finance ministers, and the following week, starting on June 28th, is a two day European summit in Brussels.


Sceptics don’t have to look far to see why; Spanish banks’ bad loans rose to the highest percentage of their outstanding portfolios since April 1994, according to the Bank of Spain.

An audit later this week is supposed to show Spanish banks needing between 60 billion and 70 billion euros ($75-88 billion) in capital.

There were mixed signals from Germany about whether it would tolerate a slight easing of demands on Greece.

It is also unclear how deep the divisions will be between German Chancellor Angela Merkel and French President Francois Hollande over easing back on austerity programmes in favor of growth.

These questions are the kind that keep markets on edge and drive investors away from what they see as riskier assets.


Shoe retailer DSW projected weak fiscal second-quarter earnings, pointing to more clearance-priced sales as well as costs tied to its expansion plans. Shares slumped 11% to $52.07 in recent premarket trading.

Infinity is ending Phase 2 trials of its experimental drug, saridegib, to treat bone and cartilage cancers, saying results have been disappointing. Earlier this year, the company discontinued its Phase 2 studies of saridegib for the treatment of pancreatic cancer. Shares dropped 18% to $11.40 premarket.

Steel Dynamics forecast second-quarter earnings below analyst expectations, pointing to a decline in sheet-steel prices. Shares fell 4.2% to $10.56 premarket.

Women’s accessories and apparel retailer Body Central Corp. (BODY) lowered its already disappointing forecast for the second quarter, citing soft sales. The company also reduced its full-year targets as same-store sales in the second quarter are now seen falling 7% to 9%. Shares slumped 23% to $12.40 in premarket trade.

The Food and Drug Administration said its own analysis of compounded versions of the active ingredient in K-V Pharmaceuticals’s (KVA, KVB) premature-birth prevention Makena drug did not identify any major safety problems, but reiterated that approved drugs are generally safer and more effective than compounded products.

Drug maker Merck & Co. (MRK) said a U.S. district court ruled against it in a patent-infringement suit involving Apotex Inc.

PetSmart Inc. (PETM) raised its quarterly dividend 18% and authorized a new $525 million share buyback, making the retailer for pet products the latest company to look to boost shareholder value.

Health-benefits provider WellPoint Inc. (WLP) said it will pay $90 million to resolve a lawsuit related to its initial public offering and lowered its full-year earnings projections.