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Today's Markets - June 18, 12 (Midday Update)

Financial markets are back under pressure today, with European stock indices and the euro surrendering earlier gains despite the pro-bailout win in Sunday’s Greek elections. Spanish 10-year bond yields soared back above the 7% mark, while the Italian 10-year stands above 6%. Across Europe, core European stock markets ease off highs, while the Spanish IBEX and FTSE MIB push sharply lower. With little in the way of economic data, volatility is expected to remain high as investors cut exposure to risk.

Today's Markets - June 18, 12 (Midday Update)
We are seeing a continued bout of risk aversion, as the early euphoria over the pro bailout win for Greece starts to fade, and instead, concerns grow about the implementation of a viable coalition by the New Democracy party. The main worry here is that a new coalition government will face difficulty in working out a plan to stimulate economic growth and agree on reforms without continued intervention by the troika.

As such, the attention will remain on the economic deterioration in the Spanish and Italian economies, as risk of contagion from Greece has not been averted as many had hoped for.

Earlier in the session, data from Spain showed that bad debts held by the country’s banks rose to an 18-year high in April, suggesting that more companies and households fell behind on debt payments. Despite Spain’s banking sector last week receiving a bailout of around EUR100 billion, fears that the country may be next on the euro-zone's bailout list continue to gather steam.

While it is very likely that today’s early sell off is somewhat overdone, it is simply the result of the market reflecting once again the notion that a comprehensive solution regarding containing the financial crisis in Europe hasn’t come forward yet and that still much work has to be done in order for investor’s confidence to return. The focus has turned on the world’s largest central banks to step in and stimulate the global growth cycle. Eyes will be on Wednesday’s FOMC meeting, with optimism still growing that the Fed in the end won’t have any other choice left than to implement new growth measures once again.

The focus will also turn on the G20 meeting in Mexico with the US expected to continue to increase pressure especially on Germany to act more decisively in order to stem the crisis in Europe as US growth continues to suffer from turmoil in financial markets. However, on the whole, not much is expected out of the G20 meeting which would change the situation regarding the European financial crisis in a major way.

Looking ahead to the US session, ETX Capital sees the DJIA opening 28 points lower and the S&P 500 lower by 2.5 points. It will be hard for US indices to ignore the selloff in European stocks especially as there is little economic data out today, with only the NAHB housing market index report at 1400 GMT of note, where expectations are of some stabilization in June after a 5-point increase in May.

Ishaq Siddiqi
Market Strategist, ETX Capital

Lundi 18 Juin 2012

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