The Greek inspired rally that saw a return for risk appetite amongst optimistic investors was well and truly dampened by Asian trading this morning as fears that rising borrowing costs in Spanish debt auctions yesterday could well mean a bailout for Spain. Eurozone finance ministers recently arranged a 100 billion euro bailout facility for Spain to use to recapitalize its banks. However, the yield on their 10 year bonds shot up above 7%, the highest it has been since the launch of the euro more than a decade ago. Yields at around 7% tend to indicate a country in need of a bailout, similar to ones arranged for Greece, Ireland and Portugal. Meanwhile in Italy, the yield on Italian 10 year debt bonds crept up to 6.10%, turning the positivity following the pro-euro victory in Greece for the New Democracy party.
The high borrowing costs from two of the Eurozone’s largest economies offset the bounce inspired by market-friendly Greek elections and stocks were down in Asian trading. At the time of writing, Hong Kong’s Hang Seng Index was down 0.35%, Australia’s S&P/ASX200 was down 0.38%, while Japan’s Nikkei 225 Index was down 0.37%.
In currency news, the dollar found itself under increasing pressure ahead of today and tomorrow’s monetary policy meeting with talk that the Federal Reserve will intervene to stimulate a stuttering economy weakening the greenback. The dollar fell against most major world currencies as markets await signs if the U.S. central bank plans to stimulate the economy via easing measures. The largest falls for the USD were against the EUR, down 0.25%, trading at 1.2609 as bottom feeders snapped up the low priced Euro. The US Dollar Index which measures the USD against a basket of 6 weighted currencies was down 0.19%, trading at 82.09.
Today, the focus will be on what emanates from the monetary policy meeting in the US. However, expect a day of increased volatility as the markets digest Euro concerns with the release of Spanish Industrial New Orders in the morning and both European and German economic sentiment at around 10am GMT. Just before that at 9.30am GMT, keep an eye on the GBP as the UK releases CPI and RPI figures with forecasts indicating pressure on the GBP.