Global Daily Market Drivers And Forex Ramifications Nov 30th: Thursday... |
Overview: As was the case yesterday, stocks, commodities, risk forex all retreating thus far today and generally down since Friday on a combination of serious bearish fundamentals that include: uncertainty about the coming Ireland bailout, soaring Portuguese and Spanish bond yields that threaten to force these nations to seek EU/IMF funds, which are insufficient to aid Spain.
This rather obvious point had lead many EU officials to favor an expanded aid fund to cover Spain, calm markets, and stop a potential crisis before it really gets going and becomes even more expensive to fix. German officials, however, prefer to play politics while Europe burns, and reject the idea. After a coalition breakdown in Hamburg this past weekend, Germany faces at least 7 state elections in early 2011, making German leaders especially sensitive to their voters’ frustration at being billed for further aid to their neighbors.
Still, they are unlikely to have a choice in the end and thus the German refusal to recognize that the potential contagion threat will eventually force their hand is sadly reminiscent of last year’s behavior, and may well lead to another market crisis.
We suspect German politicians understand this well and need to first show their voters that imposing more contributions from them was unavoidable with Europe again at the edge of the abyss.
Thursday could become a critical day this week for the EU and global markets, as it features the latest Spanish bond auction and an ECB press conference at which Trichet may need to announce new measures to stabilize the EZ.
STOCKS: US Down: All major indices fell sharply on EU contagion fears but managed to recover once the European trading session ended and close with only minor losses on a very light day for both news and trading volume.
US Bonds: Up- On Monday the benchmark 10 year note was up as stocks fell, yield down 2.864% to 2.862% as markets remained nervous about the EU after the announced Irish bailout plan due to rising Spanish, Italian, and other PIIGS bond yields that suggest the crisis is spreading.
This should be no surprise to our readers. As we’ve noted repeatedly the real crisis is contagion fear, not just Ireland.
Asia Stock Outlook: Down – Virtually all indices lower for the same reasons we’ve seen over the past days: fears of slowing China growth, EU contagion and its effects on financial markets and Asian exports. No new news from Korean Peninsula but tensions there are still a concern, and of no help to sinking Chinese stocks as China is viewed as somewhat responsible for restraining its unstable neighbor.
European Stock Outlook: Mixed – European indices opened modestly higher, fell into the red, and are now recovering somewhat in cautious trade dominated mostly by short term oversold technical adjustments as markets await further news to determine near term direction.
Today as yesterday, the real concern for Europe has not yet been addressed: the need to stop speculative attacks on Portuguese and Spanish bonds that are causing rates on these to soar and threatening to force these nations to seek EU/IMF aid. Current rescue funds are considered far too small to aid Spain. Many EU officials thus believe these funds must be expanded, but thus far Germany has objected.
This past weekend political events in Germany have forced new elections in a number of German states in early 2011, making German leaders ever more sensitive to voter backlash if threatened with further bailout bills.
Ramifications for Forex, Other Markets: It's a textbook 'risk-off' day, with the major fx behaving almost exactly as expected on a risk off day due to the EU crisis:
Strongest to Weakest major fx: JPY CHF USD GBP CAD NZD AUD EUR
About the author: Ava FX Analysts Department
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