Here's my summary of the key news overnight in 90 seconds at 9 am, including news a poor Spanish bond auction overnight reignited fears about the European debt crisis and weakened the euro.
Spain sold 3 billion euros in the government bond auction, but the yields blew out to unsustainable levels and the amount of bids was much lower than in previous auctions. Spain's five year yield spiked to 6.46% from 6.07% previously and its 7 year bond yield rose to 6.7% from 4.83% at the previous auction. See more here at BBC. The 10 year bond rose back over 7% again.
The euro fell and the spread between the Spanish 10 year bond yield and the German 10 year bond yield, which is a key measure of stress in the European bond markets, rose to as much as 583 basis points, near a record set in June before a European leaders summit that agreed a deal supposed to get it down. See more here at Bloomberg.
This move essentially shows the capital flight from Southern Europe into Northern Europe on fears about a euro-zone breakup is now back on in earnest.
However, the Dow rose 0.3% as, perversely, more signs of bad economic news encouraged stock investors to believe the US Federal Reserve will have enough evidence to go ahead with a third round of quantitative easing (QE III) as early as August 1.
Fresh data showed existing US existing home sales fell unexpectedly, the Philadelphia Federal Reserve survey of manufacturing activity fell for the third month running, US consumer confidence fell, jobless claims rose and a key economic indicator fell more than forecast.
All this gloom about the US economic outlook saw record demand for US TIPS (Treasury Inflation Protected Securities) at an auction overnight. The yield fell to a record low negative 0.637%. That means investors are effectively paying the US government to look after their money once inflation expectations are taken into account. See more here at Bloomberg.
The fall in yields in Northern Hemisphere markets made the higher yields in Australia and New Zealand relatively more attractive, which helped boost the New Zealand dollar to a 1 month high of over 80.3 USc. The Australian and New Zealand dollars are also being helped by a Wall St Journal report that Germany's Bundesbank is preparing to buy Australian dollars to help diversify its reserves away from the euro.
The weakness in the euro saw the New Zealand dollar rise to a fresh record high vs the euro of over 65.6 euro cents.
Meanwhile, the oil price rose sharply overnight as tensions mounted in the Middle East. Governments are now planning for the collapse of the regime in Syria and Israel blamed Iran and Hezbollah for a deadly attack in Bulgaria on Israeli tourists. See more at Bloomberg.
Also, there has been a tragic accident in Wellington. Stuff reports Infratil's Tim Brown has been seriously injured in a bus accident. He was hit by the bus while walking in Wellington and is in Intensive Care with severe head injuries and a collapsed lung. Brown was Lloyd Morrison's right hand man at Infratil and a key player in its many investments in Wellington Airport, NZ Bus and Trustpower. Our thoughts go out to his family and his colleagues at Infratil and HRL Morrison.
(Updated with details on Bundesbank buying A$ and Tim Brown accident.)