Choppy trading to finish week as investors digest weekend Spanish bailout speculation

European markets endured a choppy trading session to end the week on Friday as investors positioned themselves for a weekend of intense speculation as to whether Spain will seek a bank bailout or not.

The FTSE 100 had earlier suffered losses of as much as 1% on weak data out of the eurozone and in reaction to Fitch cutting Spain’s credit rating by three notches on Thursday night, before some small buying back into stocks helped to lift the FTSE back towards flat territory going into the close. Going into the closing auction, the FTSE lost 12 points to close at 5435.

Spanish bailout?
All eyes now switch to developments in Madrid and Brussels over the weekend where speculation is intense that Spain could become the fourth country in the eurozone to receive a bailout. Investors have turned a blind eye to statements from a spokesperson of the Spanish government today that no plans are currently afoot for the indebted country to receive a bailout and investors have been quick to read between the lines of a speculated scheduled conference call of EU finance ministers on Saturday to discuss a Spanish bailout.

A bailout for Spain would mark a new phase of the euro crisis, given it would be the largest country in the eurozone to receive a bailout thus far, as the fourth largest economy in the eurozone.

The timing of any Spanish bailout could be critical considering we have the prospect of yet more uncertainty deepening in Europe with the second Greek election due on 17th June. As such, EU ministers will want to avoid creating a situation whereby the uncertainties of both Spain and Greece combine at the same time to create a perfect storm in the euro region. A Spanish bailout could help to remove a degree of uncertainty from the markets when they re-open next week, if indeed a bailout does come this weekend.

At this stage however, nothing is confirmed and as such many investors have been trading on speculation and this has made trading particularly choppy today.

The positive fillip given to mining stocks from the Chinese decision to cut rates has already waned somewhat, which tells a tale that investors had been expecting some form of easing from China after their refusal to repeat previous stimulus measures. The question now will be what is China’s next steps and how aggressive with their change in monetary stance be? Signs of a sharper fall in Chinese inflation over the weekend could indeed give China more room to manoeuvre in rate cuts going forward.

Weaker than expected data out of Italy and Germany continued to highlight the pressures on growth in the EU. Italian industrial output fell much more aggressively than expected, with the adjusted per work day figure falling a huge 9.2% on an annual basis, much more than the 7% fall expected. German imports fell 4.8%, whilst exports also fell 1.7%.