10-Year Yields:
Greece 21.70%
Portugal 11.50%
Hungary 8.83%
Spain 6.00%
Italy 5.72%
Belgium 3.49%
France 3.10%
Netherlands 2.40%
Finland 2.16%
U.K. 2.13%
U.S. 1.93%
Germany 1.67%
The France election results show Sarkozy losing to Hollande, as expected. The futures dropped slightly on that news but the outcome was anticipated. As Hollande's ideas are studied, such as potentially trying to revise prior European treaties, markets are weakening further. The France runoff election is 5/6/12. Sarkozy is now trying to win over the Le Pen voters which placed a stronger finish than anyone expected.
The big news overnight was the HSBC Flash PMI that reported six consecutive months of contraction for China's economy. Commodities are selling off and U.S. futures are strongly lower. Spain's GDP is projected to fall which predicts recession ahead. The negative news overnight has the Italy market down 3% as well as European and Asian markets weak. Germany's manufacturing data is slowing and they are the strongest economy in Europe. The Dutch are failing to agree on budget cuts sending the Eurozone into a tailspin this morning. The Netherlands is one of the countries providing support to Europe so this development is troubling.
The Spain 10-year yield is at 6%. Italy is at 5.72% and printed over 5.8% a short time ago. The France 10-year yield is well over 3% now, up ten basis points compared to last week. The Netherlands yield is up 15 basis points from last week to 2.40%. The safer haven countries show yields at 2.16% or lower. The U.S. and Germany are under 2%. Germany is printing a very low 1.67% yield, perhaps the U.S. is headed this way as well.
Focus on the France-Germany and Netherlands-Germany Spreads to gauge the European turmoil and contagion. The France-Germany Spread is 143 percentage points (3.10-1.67). This spread was 100 in December 2011 and 129 last week. The direction is showing spreads blowing out which is troublesome. Analysts are now predicting the spread will blow out to 170 points which means France's yield will move up substantially from here. The Netherlands-Germany Spread is 73 points (2.40-1.67) the widest spread since 2009. This is worrisome since a strong Dutch country that was helping suppport the Eurozone now appears to be slipping away. Monitor these two spreads closely moving forward to gauge European contagion.
Keystone, what do you think about a possible decisive break below the 2009 lows on the Spanish Ibex? Is this a tripwire that could cause more pain (or a bit of panic) for continental bourses or just the new Athens Composite?
ReplyDeleteHello Anon, an additional trigger does not matter much when fireworks and exposions are going off everywhere around you. Those lows will likely be explored in the future but everything is a process. Perhaps China says they will give Europe a bunch of money and also announce a triple R cut and the markets will turn happy again. The EWP, the Sapin ETF, weekly chart, shows positive divergence for the MACD line and histogram, and momney flow, but weak and bleak for the RSI and stochastics, thus, a bounce will occur and then price should slip again. Lots of drama ahead into the summer time.
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