Here's my summary of the key news overnight in 90 seconds at 9 am, including news the New Zealand dollar fell below 77 USc in morning trade as the European debt crisis deepened and prices fell a further 6.4% in Fonterra's fortnightly milk powder auction.
See more here on our site on the Fonterra auction result and see below for our long term NZ$ chart. Milk powder prices have now fallen 41% in the last year, far more than the 5% fall in the NZ dollar vs the US dollar over that period.
Meanwhile, more than 700 million euros was withdrawn from Greek banks on Monday as depositers fearing a Greek exit from the euro and a massive devaluation into drachma transferred as much cash as they could to Germany, the WSJ reported.
Depositors fear the value of their savings would be halved overnight if Greece leaves the euro and their euro savings are converted into Drachma.
This came as Greece's President gave up attempts to broker the creation of a coalition government and said fresh elections would be held, possibly as early as June 17. Many are worried Greece's government and its banks will have run out of cash by then. Already Greece's government has started to delay tax rebates and other payments to suppliers. Although Greece did repay holdout bond holders 435 million euros last night, which was almost half its cash on hand. This ensured Greece did not 'hard' default on its debts. It has already 'selectively' defaulted on its debts.
This run on Southern Europe's financial system was played out in Europe's bond markets overnight. Spain's 10 year bond yield spiked to 6.34%, which is widely seen as unsustainable for Spain's government if it lasts for any length of time. Italy's 10 year bond yield also spiked over the key 6% mark. These movements in bond yields are in direct opposition to the fundamentals in their economies, both of which are in deep recession, data released overnight showed.
In contrast, the yield on Germany's 10 year bund yield fell to a record low 1.46% despite better than expected economic growth figures overnight. This blowout in the difference between Southern European bond yields and German yields is a direct reflection of massive shifts of money away from Southern Europe and into the 'safe haven' of Germany, just in case any Greek exit were to spread to the exit of Spain, Portugal and Italy. Already, more than 640 billion euros has been transferred out of Southern European banks into German banks in the last year.
All this drove European stocks around 1% lower and the Dow closed on its lows and down around 1%. Even Gold fell to a fresh four month of US$1,555 as investors feared a deepening global downturn would keep inflation under control.
No chart with that title exists.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.