Spain and Italy ban short selling as stocks crunched again; Spanish yields hit record highs; German yields at record lows; NZ$ down to 78.9 USc; Oil slumps 3.3%
Here's my summary of the key news overnight in 90 seconds at 9 am, including news of barely disguised panic on Spanish and Italian financial markets overnight as fears that Spain may need a full bailout sparked wholesale capital flight out of Southern Europe and into Northern Europe.
Investors worried about the possible breakup of the eurozone believe their euros will be safer in Northern European countries in the event of a breakup. Investors in Italian and Spanish banks are worried they will be the first to have to take losses if any government debt restructuring is triggered, given banks are now major holders of these government bonds.
That saw Italian bank stocks slump sharply overnight, forcing regulators there to put in place a ban on short-selling of financial stocks. This refers to the practice of hedge funds borrowing shares from pension funds and then selling them, aiming to make a profit when they buy them back at a lower price. Italy's stock market eventually closed down 2.8%, having earlier fallen 5%. See more here at Bloomberg.
Spain also imposed a short-selling ban across all its stocks after its market slumped another 5.5% in the first hours of trade, taking a 2 day slump in its stock market to more than 10%. Eventually Spain's stock market closed down 1.1%. The Eurostoxx 50, a broad measure of the biggest stocks in Europe, fell 2.6%. See more here at Bloomberg.
Short-selling bans were a tactic used on stock exchanges in America, Europe and Australia in the depths of the Lehman Brothers crisis of September and October 2008.
The Dow fell more than 100 points or 0.9% on fears the turmoil in Europe would hit global economic growth and US company profits. See more here at Bloomberg. Chinese stocks fell to 3 year lows after a senior central bank official said he was pessimistic about growth, Bloomberg reported.
All this aversion to risk saw investors rush for safe haven bond investments in Northern Europe and the United States. US Treasury yields fell to record lows, with the key 10 year yield dropping to 1.44% and the 30 year yield down to 2.47%. The German 2 year bund yield dropped to minus 0.08%, indicative of the fear about a potential Euro zone breakup. See more here at Bloomberg.
Spanish 10 year bond yields spiked into record and unsustainable territory over 7.5%, while Italian 10 year yields rose to over 6.3%. The move follows fresh calls for bailouts from Spanish regional governments. See more here at Bloomberg.
Oil prices fell more than 3% and the most this year on concerns the synchronised slowdown of European, Chinese and US economies would depress demand for oil. See more here at Bloomberg.
All this aversion to commodity-linked and 'riskier' currencies such as the New Zealand dollar saw it fall more than 1 USc overnight to 78.9 USc in morning trade. It even fell against the euro to 65.0 euro cents from as high as 65.9 euro cents late on Friday.
All this turmoil on international financial markets suggests lower economic growth and interest rates for longer, and eventually pressure higher on unemployment in Australia and New Zealand, particularly given the slowdown in the Chinese economy.
On a personal note, it's very sad to hear of the passing of childrens' author Margaret Mahy. I spent many an evening reading her books to my children. My favourite was the Man whose mother was a pirate.