World stocks dropped today and top-rated government bonds rallied as Italy’s crisis deepens, spurring fears of a euro zone break-up. The pessimism from Europe overshadowed the improvement seen in the Chinese trade balance.
Fears continue to dominate markets after yields on Italian bonds jumped to 7.25%, more than the 7% level at which Greece,Ireland, and Portugal also sought bailouts, fueling fears that Europe may not be able to afford a bailout.
This escalating problem may determine European leaders to consider a euro zone break-up. News indicate that German Chancellor may adopt next week a motion that allows the euro members to exit the currency area.
With the focus turned to Italy, news from Greece are no longer having an impact. Criticism are growing over delays in naming a new prime minister which undermines the importance of securing the bailout fund needed to avoid collapse.
In Asia stocks dropped today by the most in seven weeks, where Nikkei 225 close 2.91% down and Hang Seng closed 5.25% down. In Europe FTSE 100 fell 0.51% while DAX recovered from the early losses rising only 0.23%.
As sentiment is fragile and eyes are all focused on Italy, today’s economic data may have a limited impact. In China the trade surplus widened in Oct. but was below expectations as exports grew less than expected, igniting speculations that the Chinese economy is losing momentum.
In Japan, machinery orders and consumer confidence disappointed. Indonesia unexpectedly cut rates by 0.5% to 6% to support the economy as inflation slowed, Europe’s debt crisis deepened and the US unemployment threatens demand for exports.
Australia released a better than expected employment report. The unemployment remained unchanged at 5.2% better than expectations of 5.3%, as Australian employers added 10 thousand jobs in Oct.
In Germany the CPI rose more than expected in Oct. to 0.1%. Bank of England will release its rate decision later today, while the US will reports its trade balance numbers as well as the weekly jobless claims and the monthly budget.
The euro however rose today from the lowest of 1.3482 to the highest at 1.3617 as Italy is preparing for an auction in which it will sell 5 billion euros of one-year bills. The pound is trading around 1.5930 ahead of the rate decision.
As demand on the safe haven USD dropped ahead of the auction, the greenback fell from the highest at 78.16 to the lowest of 77.58 where it is trading as of this writing. The yen strengthened trading around 77.70.
Oil is trading around $97.08 per barrel, while gold recovered trading around $1768.60 per ounce, after the dollar weakened and the euro recovered. The AUD recovered the early losses trading around 1.0147.
Originally posted here
