Wholesale flight to safety on global markets underway on fears about 'Grexit' and slowing US economy; Gold up AND US Treasury yields down; Spanish banks downgraded as depositors flee
Here's my summary of the key news overnight in 90 seconds at 9 am, including news of a wholesale flight to safety on financial markets overnight as fears grow that a Greek exit from Europe will spark bank runs across Southern Europe and fresh signs emerge of a weak US economy.
US stocks closed down 1.5% and on their lows as investors moved out of riskier equities and into both bonds and gold.
This is unusual for both gold and bonds to rally at the same time. That's because gold is often seen as a hedge against inflation, while bond yields falling (which means bond prices rising) is a sign of lower inflation. When both rally at the same time that is a sign that fear is driving investors into anything they see as 'safe'.
This move to take 'risk off' the table overnight drove the New Zealand dollar back near its lows for the week of around 76.3 USc. It is seen as a 'riskier' currency because it is exposed to commodity prices, which tend to be the most volatile when global growth rates rise and fall.
US stocks also weakened after the Philadelphia Federal Reserve survey of business activity, which is a key survey of the manufacturing sector, showed a slump in activity that was much worse than economists' expectations. See more here at Reuters.
But the major source of fear is Europe. Spanish bank stocks slumped overnight and shares in Bankia, the fourth biggest bank in Spain, have fallen 31% in the last week.. El Mundo reported yesterday that depositers had withdrawn 1 billion euros in the last week from Bankia. See more here at Reuters.
In another sign of stress in Southern European bond markets, Spain held a bond auction overnight where the yield on its 3 year bond rose to 4.37% from 2.89%. Investors are worred about contagion from a Greek exit from the euro spreading across Southern Europe.
Many are selling their Spanish, Italian and Portugese bonds and shifting their euros into German bonds, which drove German bond yields to fresh record lows overnight.
This is essentially a silent run on Southern Europe's banking system by wholesale investors.
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