04 July 2014 by HCM
Yesterday, the ECB meeting went smoothly and the market was receptive to its dovish tone. The details regarding TLTRO which filtered were viewed as positive for EU banks, and that set the tone for a bullish session on Thursday. It was a slightly different story today. The US holidays meant a more challenging environment liquidity wise and the market struggled to absorb a large buying interest on iTraxx Financial protection, which led its underperformance. It is difficult to point to one particular catalyst for that flow, but a few recent events warranted caution. The Banco Espirito Santo story is still unfolding and rumours of accounting irregularities in the group and of debt restructuring are not helping confidence in the sector. Erste Bank, the Austrian institution, warned that fresh hits from Romania and Hungary would drive it to a record 2014 loss. That reminded investors that the crisis might not be over in certain parts of Europe. On top of that, next week the quarterly results circus rolls into town and it always add a bit of uncertainty in the market.