Spain’s debt concern

causes global panic

The European debt crisis is back on the top of the agenda dragging global markets down and causing new worries on the prospect for an economic recovery. European exchanges plummeted 2,4 %. The United States saw its worst market day in one month. Asia likewise fall steeply. The only exception was the Shanghai composite increasing 1,37 % on news that China shall ease foreigners rights to held Chinese stocks. This shall probably lead to a bigger influx of foreign capital.

Two factors contributed to yesterday’s spectacular downfall. New uncertainties regarding equities also saw oil prices, metals and precious metals as gold and silver plummet up to 5 %. The Federal Reserve closed the door for further quantitative easing (QE) in the form of cheap credit injected in the banking system. A failed Spanish Bond auction followed . Spain was unable to reach its target of selling Euro 3,5 Billions of debt. It ended with only 2,59 Billion on 5 year bonds, and the interest rate was 4,32 %, one percentage higher than during the last auction.

The positive downward trend seen in other bond auctions within the Euro zone lately was thereby reverted.

This created panic reactions in the markets and served as a stark reminder that the European debt crisis in no way is over. The head of the ECB, Mario Draghi, stated that the ECB will continue the seemingly successful policies to provide European banks with cheap credit, encouraging them to buy bonds in debt stricken European countries.

Draghi reminded, however that ECB’s job is to keep inflation under control and not act as vehicle for encouraging economic growth. That rests with the individual member states which so far have been concentrated on austerity measures which so far have sent the whole Euro zone ever deeper into unemployment and weaker growth.

This is the opposite of the medicine prescribed by US-authorities after the 2008-crisis pumping money into a cracking banking system. This seems to have worked. US employment figures are at present 8,5 % while the average for the Euro zone is 14. While the US economy is showing moderate growth, EU is sinking ever deeper into negative growth and possible recession. European politicians are, therefore, under increased pressure to reconsider austerity measures which have led nowhere.

The Euro suffered as well yesterday and fall dramatically vs. dollar and other currencies. It has recovered marginally in morning trade at 1.3152. Yen is also weaker vs USD on 82,245 after Nikkei fall 0,91 % during the night’s trading.

Gold is recovering slightly after yesterday’s USD 60 fall trading at 163. Silver fall 5 % and trades at 31,42. Oil prices has also recovered from yesterday’s bottom levels. NYMEX at 102,22 and Brent 123,05. US futures are pointing up in morning trade.