Intraday Market Thoughts

Margin Reqmts Raised on Italy & Spain Bonds, German Rating at Risk

by Adam Button
Jul 24, 2012 0:11

The euro tumbled once again on Monday as Spanish and Italian borrowing costs skyrocketed. Risk trades were hit hard with the yen leading and NZD lagging. Markets will remain on edge in Asian trading with the HSBC China flash PMI and comments from the RBAs Stevens. Gold & Aussie charts were added to Mondays Premium Insights. See more below.

After US trading, Moodys changed its outlook on Germany and Netherlands to negative from stable, sparking a renewed round of risk aversion.

Earlier in the day, Spain banned short selling on all stocks after the IBEX fell to a 9-year low. The lows of the day came moments afterward with the euro touching 1.2067 and cable falling below 1.5500. Spanish stocks were down as much as 5.9% before the announcement but squeezed higher afterwards and helped boost risk appetite.

After European markets closed, bond clearer LCH Clearnet announced margin hikes on most Italian and Spanish long-term debt, a move that will surely add to the markets misery. Spanish 10-year yields rose to a record 7.56% and Italian 10s hit 6.40%. The market fled to the safety of Treasury notes, sending yields to a record 1.39%.

The bond market is signaling disaster in Europe with US and global growth at risk of recession. European politicians appears to be out of ideas as Monti said there is no grounds for another emergency EU Summit. On the weekend, German policymakers appeared indifferent about Greeces future the currency union.

Strains are spilling over to emerging markets. Brazilian stocks fell to the lowest since October and the central bank governor said risks to growth are skewed to the downside.

More information on emerging markets will be released in Asian trading today at 0230 GMT when the the HSBC China flash PMI is released. The prior reading was 48.1 with readings stuck around 49 for the past six months. A fall below 48 would undermine growth projects (and statistics) from China and weigh heavily on AUD with the 100-day moving average at 1.0203 at risk.

The other event on the calendar for the session is a speech from RBA Governor Stevens at 0305 GMT.

Mondays PREMIUM INSIGHTS on EURUSD, oil, GBPUSD and more are found here as well charts on Daily AUDUSD and weekly gold. Non subscribers click here:



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