Market Overview

Fresh Political Drama in Spain Could Affect Investor Confidence

Fresh Political Drama in Spain Could Affect Investor Confidence

The euro climbed towards $1.31 on Tuesday morning as markets awaited Federal Reserve Chairman Ben Bernanke's testimony before congress about the central bank's views on the American economy.

Following soft retail sales data, some are expecting Bernanke to reiterate last week's message that the Fed was planning to keep its stimulus plan in place for the time being.

In the eurozone, fresh problems have arisen as Fitch Ratings cut its credit rating for the European Financial Stability Facility from AAA to AA+. The agency cited its downgrade of France last week as the main reason for the reduced rating. Since the fund's creditworthiness is dependent on the countries paying into it, France's rating has had an impact. France's triple-A rating was downgraded to AA+ on Friday, with rising debt and 10.9% unemployment being two of the main reasons.

Related: Benzinga Market Primer for July 16: Futures Flat Ahead of Earnings

In Spain, new information regarding Prime Minister Mariano Rajoy's involvement in a corruption scheme has renewed uncertainty over the trustworthiness of the nation's economy. According to CNBC, Rajoy's text messages could link him to Luis Barcenas, the Popular Party's former treasurer who is on trial for tax fraud and corruption.

Unfortunately, the scandal has broken just as Spain was beginning to regain its economic footing and win back the trust of investors. Just last week, Rajoy commented that the economy had turned a corner and job creation was not far off. The European Commission commended Spanish banks on their restructuring programs and said further aid would not be necessary.

With this new scandal on the table, many are worried that the country could begin to backtrack and lose forward momentum. Since the accusations made against Rajoy directly involve public funds, questions about the nation's improving financial health could also be raised.


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