Spain on Path to Default Says S&P Analysts

(eToro Blog) The markets have been intently focused on Spain’s finances over the past few months and at least one analyst believes that investors who hold Spanish shares should consider offloading them – now. According to S&P Capital IQ (an affiliate of that S&P), Spain will, within the next few quarters, default on its obligations and in so doing follow the other PIGs (Portugal, Ireland and Greece) right to the Troika’s doorstep, hat in hand, and beg for financial assistance.

Investors have been wary of just that possibility, and yesterday’s Spanish bond auction was proof of that with 10-year yields rising to 7.01% or a rise of 5 basis points; the spread between Spanish and German debt has now widened by 583 points. Two-year borrowings rose by 15 basis points to 5.16% and demand declined. Notably, the PIGs were compelled to seek financial aid from the Troika after the yield on their respective 10-year bonds peaked above 7%.

If Spain does default, estimates suggest that the combined balance of the European Financial Stability Fund and the European Stability Mechanism will be only about €260 billion, which would be insufficient to satisfy Spain’s needs that could run as high as about €280 billion. That would put a huge strain on the E.U. firewall, and significantly sour sentiment. With all that is going on right now, analysts expect that the equity markets in Europe are likely to decline by about 5% by year’s end, with European banks generally underperforming until such time as the ECB and the E.U. leadership can sort out the much-needed banking reforms.

In Europe, the German DAX is lower by 9.02 points while the French CAC-40 is down 11.72 points; it remains on track though to record a 7th consecutive week of gains, propelled higher by expectations that the dismal economic data will convince the Fed to provide more stimulus. On OpenBook, sentiment on the CAC-40 is bullish while on the DAX it is bearish.

OpenBook trader Mmolotsane closed out several long CopyTrade positions in the DAX with an average gain of 12.41%. The trader has another DAX trade, though a long CopyTrade position, currently open which is showing a 3.99% profit and has a TP of 6,911.69. The trader only has a very small 0.6% allocation in the index, which has returned 0.9% over the past month, while an even smaller holding in the SPX500 has returned 11.4% in the same period.

Trader MagicXav from France profitably closed out three long positions in the DAX and the CAC-40 earning profits of 20.79% for the German index, and 42.94% and 20.25% for the French index. Over the past month, the trader allocated 38% of his portfolio to equities, split 11.3% to the DAX and 25.2% to the CAC-40, with corresponding gains of 24.6% and 9.1%. Over the same period, the trader’s entire portfolio yielded a profit of 30.2%.

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