World Markets Focus on Rising European Debt Stress

Bikram Pandey
06 Jul, 2011
New York City

U.S. indexes traded sideways ad service industry grew at a slower pace in May. European markets focused on the rising sovereign bonds spreads to German bunds. Portuguese bonds spread surged to a record high and yields on Spanish, Italian and Irish bonds advanced. Chinese banks worries resurfaced.

[R]4:00 PM New York – U.S. indexes traded sideways ad service industry grew at a slower pace in May. European markets focused on the rising sovereign bonds spreads to German bunds. Portuguese bonds spread surged to a record high and yields on Spanish, Italian and Irish bonds advanced. In Asia, investors focused on Chinese banks loan portfolio.[/R]

U.S. indexes traded sideways after service index expanded at a slower pace in May. The lacklustre trading only highlighted the rising sovereign debt stress in Europe and another round of fresh worries related to banks in China.

Banks and financial services providers declined around the world as spreads between German 10-year bunds and Portuguese bonds increased to record over 10% and between Greek bonds rose to 24%.

The soaring spreads in the bond market are also having a spill-over effect on the Irish, Spanish and Italian bonds prompting worries of a new round bailout.

U.S. mortgage and refinancing activity declined last week. China raised interest rates by 25 basis points, third hike in the year to stem the fastest inflation since 2008.

The European indexes traded lower after a rating agency downgraded Portuguese bonds to below investment grade. Portugal, second nation after Greece was lowered to junk rating as debt stress mount in the peripheral euro-zone.

Despite the rising debt stress in the euro-zone, Portugal completed the sale of 848 million euros of 3-month treasury bills that yielded 4.926%, up from 4.86% in the last auction in June.

German factory orders increased and Spanish industrial production fell in May.

The UK indexes declined on worries of a contagion in the euro area. The UK retail inflation rose, private sector job growth eased, and home prices climbed in June. New car registrations in the UK decreased 6.2% annually in June.

The benchmark index Nikkei increased 1.1% and extended gains for the sixth session and broader Topix index added for the seventh session in a row. The Nikkei has rebounded to a loss of 3.4% from the fall of 17% after the March 11 earthquake. Exporters led the gainers. Resource linked companies and trading houses also participated in the rally.

Australian stocks closed higher ahead of the jobs report. Commodities and Australian dollar gained lifting resource linked stocks. Coal miners closed lower on the prospect of carbon tax implementation. Tiger Airways stopped selling tickets meeting regulatory demands.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield increased to 3.125% and 30-year U.S. bond traded increased to 4.375%.

The U.S. dollar decreased at $1.4309 to one euro and fell against the Japanese yen to 80.90 yen.

Immediate delivery futures of Texas crude oil decreased $0.10 to $96.79 a barrel and futures of natural gas decreased 0.14 cents to $4.22 per mbtu and gasoline price increased 2.37 cents to 300.11 cents a gallon.

In metals trading, copper decreased 2.1 cents to $4.33 per pound, gold soared $17.90 to $1,530.60 per ounce and silver increased $0.60 to $36.01.