LONDON: Uncertainty over the impact of a potential Greek exit from the euro drove a rush to safety by investors on Monday, sending the single currency and European shares down to near four-month lows.
China's decision to loosen monetary policy at the weekend also added to fears that the global economy is suffering as the crisis worsens, sending oil, copper and gold down.
US stock index futures pointed to a lower open on Wall St. "The probability of a euro exit (by Greece) has risen in the past few hours," said Thomas Costerg, an economist at Standard Chartered Bank.
"Fragility elsewhere in the euro area means that contagion from a Greek exit could be damaging." Greece's political landscape has been in disarray since an inconclusive election on May 6 left parliament divided between supporters and opponents of a 130 billion euro ($168.3 billion) EU/IMF bailout, with neither side able to form a government.
Renewed worries about Spain's beleaguered banking system, after Madrid's latest clean-up efforts failed to allay investor concerns, added to the problems facing the euro area.
This list grew on Sunday when German Chancellor Angela Merkel's conservative party suffered a crushing defeat in an election in Germany's most populous state.
If Greek political leaders cannot agree on a coalition, a fresh election is likely next month, which opinion polls have shown will favour anti-austerity, left-wing parties who do not plan to adhere to Greece's bailout conditions.
Any outcome that threatens the bailout deal makes a default on its debt and an exit from the euro more likely, which has huge implications for the official holders of Greek sovereign debt, which include the IMF, the European Union (EU) and the European Central Bank (ECB). "It looks increasingly likely Greece will have to leave.
This is what is going to blight the markets for the next few weeks," said Neil Mellor, FX strategist at Bank of New York Mellon.
Riskier debt In the debt markets the Greek impasse and worries about Spain's banking sector sent bond yields and default insurance rates up across the board for riskier euro zone sovereign debt such as Spain, Italy and Ireland.
Spain was able to sell 2.9 billion euros ($3.8 billion) sale of short term debt into the weaker market but borrowing costs rose to just under three percent, meaning it now pays twice as much for 12 month money as Germany pays for 10 years.
Spanish 10-year bond yields meanwhile jumped 29 basis points to 6.32 percent and the cost of insuring Spanish bonds against default hit an all-time high.
Equivalent Italian yields were 25 bps higher at 5.94 percent. Italy sold 3.5 billion of three-year bonds but its borrowing costs rose to highs of 3.91 percent.
Safe-haven German bonds and the US dollar gained from the drive for safety, with the June German Bund future in uncharted territory at 143.64, having jumped 87 ticks.
US Treasuries were also rallying sharply, pushing benchmark 10-year yields to their lowest levels since early October at 1.786 percent.
Weakness across peripheral debt markets adds to pressure on the region's finance ministers to come up with a solution to Greece's difficulties in a meeting later in Brussels.
They will also need to address growing calls for more pro-growth policies across the currency bloc. Markets have begun to focus on an apparent split between the European Central Bank (ECB) and political officials, especially when it comes to how to handle a euro exit by Greece.
indiatimes.com
China's decision to loosen monetary policy at the weekend also added to fears that the global economy is suffering as the crisis worsens, sending oil, copper and gold down.
US stock index futures pointed to a lower open on Wall St. "The probability of a euro exit (by Greece) has risen in the past few hours," said Thomas Costerg, an economist at Standard Chartered Bank.
"Fragility elsewhere in the euro area means that contagion from a Greek exit could be damaging." Greece's political landscape has been in disarray since an inconclusive election on May 6 left parliament divided between supporters and opponents of a 130 billion euro ($168.3 billion) EU/IMF bailout, with neither side able to form a government.
Renewed worries about Spain's beleaguered banking system, after Madrid's latest clean-up efforts failed to allay investor concerns, added to the problems facing the euro area.
This list grew on Sunday when German Chancellor Angela Merkel's conservative party suffered a crushing defeat in an election in Germany's most populous state.
If Greek political leaders cannot agree on a coalition, a fresh election is likely next month, which opinion polls have shown will favour anti-austerity, left-wing parties who do not plan to adhere to Greece's bailout conditions.
Any outcome that threatens the bailout deal makes a default on its debt and an exit from the euro more likely, which has huge implications for the official holders of Greek sovereign debt, which include the IMF, the European Union (EU) and the European Central Bank (ECB). "It looks increasingly likely Greece will have to leave.
This is what is going to blight the markets for the next few weeks," said Neil Mellor, FX strategist at Bank of New York Mellon.
Riskier debt In the debt markets the Greek impasse and worries about Spain's banking sector sent bond yields and default insurance rates up across the board for riskier euro zone sovereign debt such as Spain, Italy and Ireland.
Spain was able to sell 2.9 billion euros ($3.8 billion) sale of short term debt into the weaker market but borrowing costs rose to just under three percent, meaning it now pays twice as much for 12 month money as Germany pays for 10 years.
Spanish 10-year bond yields meanwhile jumped 29 basis points to 6.32 percent and the cost of insuring Spanish bonds against default hit an all-time high.
Equivalent Italian yields were 25 bps higher at 5.94 percent. Italy sold 3.5 billion of three-year bonds but its borrowing costs rose to highs of 3.91 percent.
Safe-haven German bonds and the US dollar gained from the drive for safety, with the June German Bund future in uncharted territory at 143.64, having jumped 87 ticks.
US Treasuries were also rallying sharply, pushing benchmark 10-year yields to their lowest levels since early October at 1.786 percent.
Weakness across peripheral debt markets adds to pressure on the region's finance ministers to come up with a solution to Greece's difficulties in a meeting later in Brussels.
They will also need to address growing calls for more pro-growth policies across the currency bloc. Markets have begun to focus on an apparent split between the European Central Bank (ECB) and political officials, especially when it comes to how to handle a euro exit by Greece.
indiatimes.com
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