Unfortunately it doesn’t appear that Ireland’s bailout has done much to stymie the contagion. Spanish 2yr bond yields rose to 3.7% from 3.48% while the 10yr rose to 5.42% from 5.17% (spread to bunds at a record high). Italian (10yr spread to bunds also at a record) and Portuguese yields were also up and in a move that makes no sense at all, Ireland ’s 10yr bond yield rose to 9.25% from 9.19%. It’s a tough one for the Europeans, as most of the ‘solutions’ presented, at their core, once you strip out the rhetoric and deceit, involve dissolving the union; which is hardly a solution at all. Indeed it would make things a lot worse and would do nothing to aid regional stability over the long-term.
But other than these extremist rantings, there is not a lot in the way of reasonable or practical advice on how to restore order. It‘s hard to see what will act as a circuit breaker to be sure. The market is in a frenzied state at the moment with no clear catalyst for change. Even agreement on the long-term European Stability Mechanism – a permanent European bailout facility agreed to on Sunday, failed to stop the rot. To me it seems that, rather than try and placate the market (which isn’t working), Spain and Portugal may find it more beneficial to have to look at the whole system, the process of how they raise money and issue debt. It’s not a process that appears to be working for the peripherals at the moment. The system is breaking down and it would probably pay for them to think outside the square. Food for thought at least.
Needless to say, eur was hammered again, falling by almost a big figure at the time of writing to 1.3121. Not that this is a bad thing for the euro zone. Sterling was off 35pips to 1.5567, AUD was little changed at 0.9623 while Yen was at 84.26 from 84.07.
There was also little love for European equities, down between 1.7% and 2.2% although moves across the Atlantic appear less sombre. With about an hour of trading to go, the S&P500 is up about 0.03% (1189), although at the low it was down 1.3.%. A late session rally seems to be developing, led by financials, energy and basic materials, in turn, sparked by decent rises in the commodity space. Punters here seem more taken by the stronger thanksgiving retail data in the US . Currently, crude is up 2.4% which, given USD strength, is especially remarkable. Copper is up 0.3% and gold rose smalls to $1367. Elsewhere the Dow is off 20pts to 11071, the Nasdaq is down 0.2% (2529) and the SPI is 0.2% lower at 4611.
Now on the debt side, treasury notes did rally, with the 5 and 10yr treasury yield off about 6bp each to 1.49% and 2.82%. Note however that both are well above pre-QE2 rates. The 2yr didn’t do a great deal and is off only 2bp. Considering everything going on, these moves aren’t huge and there still seems to be a great reluctance to take bonds higher (in price) and that’s with the Fed buying an additional $9.4bn of Treasuries last night. Aussie futures were a few ticks higher (on a 5 tick range) with 3s at 94.92 and 10s at 94.52.
There wasn’t a lot of data to speak of last night. The key release was probably the euro zone economic confidence survey which rose to 105.3 in November from 103.8. Interesting to see that European businesses and consumers don’t seem to be phased by the ‘debt crisis’. Otherwise the Bank of England report that 47k new mortgages were approved in October. In the US , Obama is proposing a 2yr public sector wage freeze.
There is a fair bit of data to watch today. We kick off at 0845 with Kiwi building permits. At 10 we get South Korean industrial production with Japanese industrial production out at 1050. Aussie data includes RP data-Rismark’s house price series (1030), and RBA Assistant Governor speaks at 11 and then building approvals, private credit and the current account (all at 1130). Tonight, watch out for euro zone CPI and unemployment and then in the US, we get house prices, consumer confidence the Chicago PMI and Milwaukie NAPM. Indian GDP is also due out at some point and the Bank of Portugal is due to issue its Financial Stability Report.