For the past few months, the markets have been focused on the European crisis. During this time, oil prices have been steadily rising:
My concern is that a weak global economy cannot take a spike in oil prices. Europe’s borrowing costs have already begun to rise due to investors wanting higher interest rate payments from government bonds in numerous European countries.
On top of all this, ratings agency, Fitch just released a research piece stating their concerns over US banks and their exposure to European debt.
The six biggest U.S. banks — JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. and Morgan Stanley (MS) — had $50 billion in risk tied to the GIIPS on Sept. 30, Fitch said. So-called cross-border outstandings to France for all except Wells Fargo were $188 billion, including $114 billion to French banks. Risk to Britain and its banks was $225 billion and $51 billion, respectively.
However, HSBC had their own thoughts on the report:
The Fitch report is a worst-case scenario and is “oddly out of step” with the rating company’s previous reports, analysts at HSBC Holdings Plc said today. U.S. banks may even benefit as investors shift money to the U.S. from Europe
Either way, the fact that rating agencies are starting to have concerns about other European countries than just Greece are causing bond prices to rise in other European nations.
Europe is barely holding on and a spike in oil prices may be the straw that finally breaks the camels back.