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Stocks plunge as eurozone crises continues

Shares came under pressure again today following several days of gains on continuing fears over Greece and Spain. Ten year bond yields in the latter were close to 6.7%, as investors demanded an extra return from a government that they feel could become increasingly under pressure as it provides support to the domestic banking system. It came as the European Central Bank rejected Madrid’s plans to bailout Bankia via the injection of government bonds that could be parked with the ECB as collateral. The unorthodox idea, suggested over the weekend, was purportedly in danger breaching an EU ban on “monetary financing”, i.e. the funding of governments by central banks. The euro approached a 1% loss against the dollar, dropping below $1.24 which represents its lowest level for nearly two years.

Italy sold €5.73 billion of five and ten year bonds, below their maximum target and the latter at a rate of 6.03%, the highest since January and adding to the disappointment. Sentiment was also dented this morning as the Chinese government dampened speculation that they were about to deploy massive stimulus to boost their economy.

With European markets trading lower by almost 2%, comments from the European Commission calling for a “Banking Union” eased concerns such that European indices jumped to trade 1% lower for the day. The proposal suggested that allowing the eurozone’s new rescue fund (the European Stability Mechanism) to directly boost the capital of banks “might be envisaged” by the EC. This would help prevent national governments being financially crippled by their liabilities to support their domestic banking systems, as is the concern in Spain at present.

The Chinese fears affected a raft of UK stocks, with a host of miners lower by around 4% on the FTSE 100, with the index itself finishing 1.7% lower at 5297. Stocks in the US were trading just over 1% lower, whilst those in France and Germany were subject to around a 2% loss. At the time of writing, the US 10 year Treasury yield fell to an all time low of around 1.63% in a trade that epitomises market fear and the desire for “safe haven” assets.

This was posted in Bdaily's Members' News section by James .