Portugal woes sink European stocks
NEW YORK — Stocks plunged at the open Thursday as an old worry that had faded from view suddenly resurfaced: fears about the health of a European bank.
In a flashback to the euro-zone banking crisis that roiled markets in the summers of 2011 and 2012, questions over the health of large Portuguese bank, Banco Espirito Santo, has caused a stock sell-off in Europe and the angst spread to Wall Street.
The Dow Jones industrial average dropped more than 150 points at the open.
The Standard & Poor's 500 index fell 0.9% and the Nasdaq composite index plunged 1.4%.
The market weakness in the U.S. follows a rebound yesterday after two days of losses. Wednesday's gains in the U.S. were driven by the release of the minutes of the Federal Reserve's June meeting, which suggested that the first interest rate hike in the U.S. is still a far ways off, despite the fact the Fed is looking to end its bond-buying program in October.
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Shares of Portugal's main PSI index were down around 3%, with other European bourses also in the red. Shares of Germany's DAX were down 1.5%, the CAC 40 shed 1.6% and London's FTSE 100 was off 0.8%.
Portuguese government bonds were also selling off, with the yield on its 10-year note climbing to 3.885, up 0.15 basis points, according to The Wall Street Journal. Banco Espirito Santo shares were down as much as 14%.
Here's what market strategists at Barclays had to say about the latest banking scare in the euro-zone:
"European equities are down by over 1% as concerns persist over the financial health of Portuguese banks," the bank said in an early market report. "Banco Espirito Santo shares slumped a further 14% this morning, dragging the Portuguese PSI all-share index down by over 3%. … The trigger for the turbulence was a Bloomberg report on Tuesday of delayed payments of short-term debt obligations."
Portuguese bonds were hit hard, Barclays adds "with yields rising by almost 0.19 during European trading."
Weak economic data in Europe also weighed on investor sentiment. On the data front, Italian industrial production fell more than expected, as did IP data in France, Barclays said.
Shares in Banco Espírito Santo have been under pressure since accounting irregularities emerged in its holding companies in late May," according to a report in today's Wall Street Journal. "But the declines mounted drastically Thursday after investors learned that parent company Espírito Santo International had delayed coupon payments relating to some short-term debt securities."
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Bank woes in Europe rattle US shares anew
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