21/02/2011
Worries about the fiscal health of the eurozone periphery returned on Friday
Global Stock Markets Weekly Report
Worries about the fiscal health of the eurozone periphery returned on Friday, exerting pressure on European equities markets at the end of a strong week5 per cent. Bucking thetrend, China’s for the region’s indices.
Concern about Portugal’s ability to raise funds in the capital markets continued to circulate ahead of this weekend’s meeting of G20 finance ministers in Paris and the preceding discussion between the world’s top central bankers.
Defaults here and in SPAIN can create PANIC and contagion spreading over the world. The risk is not over and the EU does not have the complete plan to manage the 100′s of billions in BAD loans and upside down paper their banks are reporting as good assets when in fact – they are crap. There are runs on these nations and banks with huge outflows taking place. We are all watching.
Wolfgang Schäuble, Germany’s finance minister, said in an interview with the Nikkei newspaper that Berlin would support further aid for heavily indebted eurozone members if they accepted structural reforms.
Portuguese 5-year bond yields hit their highest level since the formation of the euro. The 10-year yield on Lisbon’s debt hit 7.43 per cent, rising above levels seen last November and increasing the spread over German government debt yields to 415 basis points. Debt cost to keep the train rolling in the EU are soaring to 500% what they were – last year. The graph looks grim. The nations in distress can not AFFORD these massive increases in their roll over debt cost month to month. They are selling in one month paper to pay for the paper from earlier months. We all know how that works – REALLY.
Data showing exceptionally high emergency overnight lending levels from the European Central Bank chimed with the renewed sense of nervousness.
Figures on Friday showed that borrowing through the ECB’s marginal lending facility, which charges penalty interest rates and tends to be used by banks in difficulty, rose to €16bn on Thursday, above Wednesday’s level of €15.8bn.
Borrowing from the facility was €1.2bn on Tuesday and the daily average this year has been just €100m a day.
Thanks to the Dow Jones Industrial Average moving higher in late morning trade in New York, the main European indices finished fairly flat – the FTSE Eurofirst 300 eased 0.1 per cent after heavily-weighted miners listed in London left the FTSE 100 down 0.2 per cent. However, Frankfurt and Paris ended with small gains.
There were wider losses on the periphery of the single currency area. Spain’s main index slipped 0.4 per cent, while Portugal’s main index, the PSI 20, fell 1.3 per cent.
The Dow closed up 0.6 per cent and the S&P 500 gained 0.2 per cent. US Treasury prices were mixed, with the two-year note yield down 2 basis points at 0.76 per cent, while the yield on 10-year notes was 1 bps higher at 3.58 per cent.
China’s move to raise bank’s reserve requirements by 50 basis points after the close of Asian trade added to pressure on base metals prices and resource stocks which depend on the fast-growing economy for demand. The move, Beijing’s latest effort to ease inflationary pressure and cool its runaway growth, follows last week’s interest rate rise. China is not winning. Inflation in China is now approaching RUNAWAY inflation and the gov is loosing in its 90 day battle. Keep posted.
The lead-in from Asian trade was solid, if unspectacular. Indices rose for a fourth straight session as foreign buyers returned to the South Korean market while better-than-expected growth data brightened sentiment in Taiwan.
The potential for political unrest in the Middle East remained as mourners gathered for the funerals of protesters killed in Bahrain’s security clampdown earlier this week. The GULF is ON FIRE and no one can predict how this will turn out.
Commodities – Tensions in the Middle East helped keep oil prices supported. Nymex WTI contracts made up some ground after its discount to Brent crude reached a record in the previous session. It climbed 1.8 per cent to $87.81 a barrel, while Brent rose 0.1 per cent to $102.79.
Cotton jumped in electronic trading by its daily price limit of 7 cents to a fresh nominal record of $2.1102 per pound. The market has been largely frozen, trading to its upper limit, since Wednesday. Cotton prices have risen almost 45 per cent since the start of 2011 amid a buying frenzy. In real terms, adjusted by inflation, cotton is at its highest level since June 1981.
Forex – After early losses the euro regained its poise and traded 0.6 per cent higher at $1.3684, with a brief foray above $1.37, following comments from Lorenzo Bini Smaghi, ECB board member, that the central bank may need to raise interest rates to combat inflation.
The Swiss franc traded around two-week peaks on lingering haven demand as the political instability in the Middle East kept traders buying the currency. The dollar index continued to weaken, touching a one-week low of 77.525 after weak jobs data continued to push the outlook for a rate rise from the Federal Reserve further out.
Commodity-linked currencies reacted sharply to the news of China’s increase in the requirement rate, before quickly recovering their poise. The Australian dollar was up 0.3 per cent lower at $1.0146 after touching a session low of $1.0086.
In Asia, Japan’s Nikkei 225 ticked up 0.1 per cent, South Korea’s Kospi was 1.8 per cent higher, Hong Kong’s Hang Seng added 1.3 per cent and New Zealand’s NZX-50 up 0.
