Potential for Financial Emergency in Europe
February 5th, 2010WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
Update: Dollar: Next Leg Up
80.240
—End Update—
We need to watch Portugal, Spain and Greece closely. The sovereign debt situation could easily get out of control.
I’m watching EUR/USD as the proxy for the situation. On faster intraday periods, EUR/USD is firming, and USDX is hesitating at the 80 level with several indicators describing lower pivot highs as the index climbs. In other words, a tactical pullback in the dollar is likely before an attempt to get a handhold over 80 is attempted again. This is a very tactical assessment.
Currently, the major Asian markets are down in the 2% to 3% range. I’ll update as necessary as we move into regular market hours in Europe.
Fears Rise of Euro Government Default
Via: Wall Street Journal:
Financial markets swooned Thursday amid rising fears of a government debt default in Europe, highlighting the seriousness of the challenges facing the euro currency as fiscally challenged countries like Greece, Portugal and Spain dig themselves out of debt.
After a brief respite early this week, the cost of insuring against default the debt of euro-zone members with large budget deficits jumped late Wednesday and rattled investors more broadly on Thursday.
While Greece and Portugal have felt investors’ fire in recent days, now even larger economies like Spain are starting to come under pressure from worries about their weakened public finances.
Blue-chip stock indexes in Spain and Portugal slumped nearly 6% and 5%, respectively, while an index of Europe’s 600 biggest companies dropped 2.7%. The euro sank more than 1% against the U.S. dollar to an eight-month low of $1.3727 and lost 3% of its value against the Japanese yen.
The global economic downturn, and extensive government spending to fight it, have led to major fiscal problems in Europe, especially for less-dynamic economies like Greece, Portugal, Ireland and Spain. Such countries took advantage of their membership in the 16-nation euro bloc during the boom by borrowing at unusually low interest rates. But now, investors are worried about how they will reduce yawning budget deficits that exceed 12% of their economic output in the case of Greece and Ireland.
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Portugal Near Political Crisis Over Debt
Via: Financial Times:
Portugal moved towards a political crisis on Thursday night as its finance minister appealed to opposition parties not to defeat the minority Socialist government over a regional finance bill that he said would undermine the country’s international credibility.
In a televised address, Fernando Teixeira dos Santos said opposition proposals to allow the Portuguese islands of Madeira and the Azores to increase their debt would have “grave consequences for Portugal’s public accounts” and send “the worst possible message” to financial markets.
His warning came as Portuguese bonds and shares came under fire for the second day running as concerns over sovereign debt spread from Greece to other high-deficit countries in the eurozone.
The Lisbon stock market fell almost 5 per cent on Thursday, the biggest daily fall since November 2008, and bond yields rose to new highs amid doubts over the ability of Portugal to consolidate its public accounts.
The cost of insuring Portuguese debt against default also rose to a record high.
