Spain. A Giant Too Big To Fall?

With Greece in the spotlight, some reporters have turned their attention to Spain. Could this flagging economy go under and what would be the implications if it did? Whilst smaller countries such as Ireland, Greece and Portugal all have individual issues, Spain has a combination of the three. However, the general consensus is that Spain is considered ‘too big to fail’ as it represent 8 percent of the eurozone’s GDP. With this in mind, should this fail to be correct then we will not be talking about minor rate movements, we could be talking about an all out collapse. Pound Sterling Rising equities caused sterling to gain against the dollar as riskier assets boosted appetite for risk. Yesterday’s unexpected gain in the value of sterling was caused by a report that showed UK exports helped the economy resume growth in the first quarter of the year. Returning to the Bank of England’s long standing to-and-fro battle with interest rates decision, Andrew Sentence will leave the board next week. This will put Spencer Dale in the spotlight as the newly appointed member heads fresh efforts to convince fellow decision makers to vote for a rate rise. Dollar The earthquake in Japan appears to have caused havoc further afield than just the local shores. Orders for US durable goods slumped more than forecast in April and a large disruption in supplies of auto goods has stemmed from the disaster in Japan. The basis behind this slump is the fact that most components derive from Japan and a shortage in supply has affected the US short term output and decreased bookings by 2.6 percent. Euro Continuing on from yesterday’s focus on Greece, it is now suggested that the European Central Bank may have mechanisms to cope with Greek restructuring. Something they have been coy about in recent weeks. Whilst France and Germany are growing ever impatient, the ECB’s agenda is less clear. Taking Greece out of the line of fire for just a moment and the euro has actually gained overnight versus the dollar, yen and sterling on prospects the ECB will be quicker than its counterparts to raise interest rates. Furthermore, if reports are to be believed, China will increase purchases of European bonds, easing concern that the sovereign-debt crisis will bleed through Europe. Other Currencies – Highlights One currency that appears to be benefiting from others misfortunes is the Swiss Franc. The currency climbed against all 16 of its most traded peers over concern that Greece’s debt crisis may threaten the regions economic recovery. Couple this with ongoing gains against major players and the franc appears to be a sure bet in what is currently an unsure market. Business investment and stocks gained across Australia causing the Aussie dollar to gain against the US dollar in particular. Along with the Aussie, the New Zealand dollar also gained as a Chinese investment company planned to invest heavily in the nations assets.