Euro snatches defeat from the jaws of victory

It would appear there has been little breathing space for European markets after the latest concerns for Spain and Greece. Euro snatches defeat from the jaws of victoryFor Spain the approval of a bank bailout has provided little support as speculation of a sovereign bailout intensifies.

Worryingly the fact that two Spanish regions have requested government aid with more potentially sitting in the wings has only acted to cement these concerns.

Over to Greece and the delay on a bailout tranche due to a failure to meet austerity targets the European Central Bank (ECB) decision not to accept Greek debt as collateral and the visit of the Troika (EC, ECB. IMF) will keep markets nervous as default fears increase.

This has certainly been reflected in the bond market with peripheral bond yields coming under increasing pressure whilst core eurozone yields have turned negative in some cases.

Spanish yields have moved above the significant 7% threshold while the euro has nose-dived versus the US Dollar and on the crosses it ever more takes on a funding currency role and makes its way towards the 1.20 level versus the Greenback.

It was a similar story against the Japanese yen which fell to 94.37 yen in Asian trade, its lowest level since November 2000.

It also dropped against the Australian and New Zealand currencies too.

Asian stock markets also fell overnight from fears that the on-going debt problems in eurozone will hurt the region’s growth.

Japan’s Nikkei 225 index fell 1.9%, South Korea’s Kospi dropped 1.8% and Australia’s ASX 200 index shed 1.7%.

As the eurozone is a key market for Asian exports and there are worries that demand from the area may decline in the near term.

At the same time, a weaker euro has also added to the woes of Asian exporters, as it makes their goods more expensive for buyers from the region.

Expectation of additional monetary stimulus, particularly in the US and China have offered some support to markets recently but this does not appear to be a long term solution so far.

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