Markets appear to have reached a flash point over night with European leaders squabbling over a strategy to contain Europe’s worsening debt crisis while the International monetary Fund (IMF) stated in no uncertain terms that more must be done and it must be done now. U.S investor confidence was tested and markets roiled as the Nasdaq and S+P both lost over 2% marking their worst session in over a week. Risk currencies got hammered as Spanish yields climbed with EUR/USD reaching an intraday low of 1.2531 while AUD/USD lost over one percent to be trading just above parity.
In Spain, yields again soared suggesting it is getting more and more difficult for Spanish banks to obtain financing and are getting to the point where they are closed out of the market and require further bailout funds. As European leaders get set to meet at the latest summit it appears German Chancellor Merkel is becoming more and more isolated in her refusal to accept what most believe to be the solution to Europe’s debt crisis – jointly held bonds (Eurobonds). The result of these bonds would likely instill more confidence in taking up Spanish, Greek and Italian debt and in essence provide these governments the time required to implement austerity and get their finances in order, while promoting growth policies. European equities lost around a percent and remain fixated on the upcoming EU Summit to be held in Brussels. The news was not all bleak with French Prime Minister Jean-Marc Ayrault confident that a deal will be made noting that ”governments know what is at stake. We have to ensure Europe’s financial stability and press ahead with our efforts to bring down debt and deficits.”
Economic data suggested improvement in German retail sales with the latest figure showing a 1.4% increase and much better than the -2.4% posted the month previous. Data out of the U.S was mixed with unemployment claims dropping slightly to 387K while existing home sales and the Philly Fed manufacturing index both dived. With U.S data again failing to show any significant improvement’s it may only be a matter of time until a third round of quantitative easing is put on the table.
In Australia we have no economic data releases today – however many ski resorts did receive a welcome dumping of snow overnight. I’m off to the mountains to bury my sorrows and will be hoping that next week proves more positive!
