Euro Tanks…

Currencies Direct July 23rd 2012 - 2 minute read

It would appear there has been little
breathing space for European markets after latest concerns for Spain and
Greece. For Spain the approval of a bank bailout has provided little support as
speculation of a sovereign bailout intensifies. Worryingly the fact that two
Spanish regions have requested government aid with more potentially sitting in
the wings has only acted to cement these concerns. Over to Greece and the delay
on a bailout tranche due to a failure to meet austerity targets the European
Central Bank (ECB) decision not to accept Greek debt as collateral and the
visit of the Troika (EC, ECB. IMF)
will keep markets nervous as default fears increase.

This has certainly been reflected in the bond
market with peripheral bond yields coming under increasing pressure whilst core
Eurozone yields have turned negative in some cases. Spanish yields have moved
above the significant 7% threshold while the Euro has nose-dived versus USD and
on the crosses it ever more takes on a funding currency role and makes its way
towards the 1.20 level versus the Greenback.

It was a similar story against the Japanese
yen which fell to 94.37 yen in Asian trade, its lowest level since November
2000. It also dropped against the Australian and New Zealand currencies too.

Asian stock markets also fell overnight from
fears that the on-going debt problems in Eurozone will hurt the region’s
growth. Japan’s Nikkei 225 index fell 1.9%, South Korea’s Kospi dropped 1.8%
and Australia’s ASX 200 index shed 1.7%. As the Eurozone is a key market for
Asian exports and there are worries that demand from the area may decline in
the near term. At the same time, a weaker euro has also added to the woes of
Asian exporters, as it makes their goods more expensive for buyers from the

Expectation of additional monetary stimulus,
particularly in the US and China have offered some support to markets recently
but this does not appear to be a long term solution so far. Despite
comparatively respectable US corporate earnings, with around 2/3 of S&P
earnings released surpassing admittedly lowered expectations so far, have
failed to stop the rout.

Finally, if we look ahead to this week we
have UK GDP on Wednesday where we are expecting a -0.2% figure (QoQ) and -0.3%
(YoY). Over to the States on Thursday and we will see US Durable Goods Orders
where we get an insight into the value of orders placed for relatively long
lasting goods. To end the week we have German Inflationary data as well as US
GDP where a 1.4% expected annual figure is expected.


Report by Phil Ryan

Written by
Currencies Direct

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