Asian Markets Fall – European Markets Open Flat Another Day of Waiting on Europe

European exchange markets opened mostly flat on today, as banks continue to declining.

The Stoxx Europe 600 index increased slightly 0.3% to 236.76, with shares of Barclays down 2.4% and BNP Paribas SA losing 2.4

The German DAX 30 index moved 0.4% to 5,808.88. The French CAC 40 straight lined at 3,088.47. The FTSE 100 index rose 0.1% to 5,435.49.

It feels like the calm before the storm. Everyone is sitting tight, hoping for the best and knowing bad is about to come.

Asia indexes dropped today, with exporters and resource stocks weak after multiple ratings agencies issued a weak assessment of European leaders’ latest plans to stem the debt crisis.

“The sell-off in Asian markets is feedback to the euro zone news, and [losses] in the U.S.,” Peter Lai, Hong Kong-based director at DBS Vickers said. “Investors are dumping shares connected to the euro zone, the exporters.”

Japan’s Nikkei fell 1.2% to 8,552.81, South Korea’s Kospi dumped 1.9% to 1,864.06 and Australia’s S&P/ASX 200 index fell 1.4% to 4,193.40.

China’s Shanghai Composite plunged 1.9% to 2,248.59 for its fourth-straight day of losses, while Hong Kong’s Hang Seng dove 0.7% to 18,447.17 and Taiwan’s Taiex slid 0.8% to 6,896.31.

Asian headlines this morning read “Asia Markets Fall as European Optimism Fades.” This says it all.

The early morning currency markets are following the path of the indexes. The euro traded at $1.3186 on today, down a bit from the close yesterday.

“There is still some way to go before a turning point in the euro crisis is reached. One reason being the apparent lack of firepower to support sovereign bonds, particularly from the European Central Bank,” said the Credit Agricole strategists.

The ECB said Monday it had sharply slowed its sovereign-bond purchases last week to €635 million ($850 million) from €3.7 billion the week before, as it apparently took advantage of a market rally spurred by hopes of a deal ahead of the summit. Its disclosed purchases since it launched the program last year total €207.6 billion.

French President Nicolas Sarkozy on Monday stated in regards to Standard and Poor’s possible downgrade of French sovereign debt “For the moment, they have maintained the triple-A. If they take it away from us, we would confront the situation with cool heads and calm. It would be a difficult, but not insurmountable,” But the markets were less calm. The yield on benchmark 10-year Italian bonds rose from 6.34% to around 6.52%—after climbing to 6.74% earlier Monday, according to Tradeweb. The yield The markets today continued to push bond yields high  Spanish 10-year bonds was a fraction higher at 5.73%, having risen as high as 6.02% Monday. Five-year Italian bond yields raised three basis points to 6.70%, after reaching the psychological threshold of 7% earlier in the session. A basis point is 1/100th of a percentage point.

There is a total lack of confidence in the leaders of the EU, while the ECB and IMF have moved to the sideline.

It looks like the EU ministers will be summoned to an Emergency EU Summit, to deal directly with the short term crisis. The markets are forcing the issue; political leaders around the globe are demanding a plan, the rating agencies are pushing and the banker are screaming. Let’s see what the Merkel-Sarkozy partnership will do.

 Today’s Financial Jargon

Sovereign Bond

A debt security issued by a national government within a given country and denominated in a foreign currency. The foreign currency used will most likely be a hard currency, and may represent significantly more risk to the bondholder.

The government of a country with an unstable economy will tend to denominate its bonds in the currency of a country with a stable economy. Because of default risk, sovereign bonds tend to be offered at a discount. Brady bonds, which are issued by governments in developing countries, are a popular example of sovereign debt securities. (from investopedia )

 

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