While everyone likes to hate on Cyprus, it is Italy that is the focal point of today's European "omnishambles" that has seen the EURUSD tumble to a five month low as of this writing. First it was economic data that scared investors, with Industrial Sales and Orders tumbling far below expected, posting numbers of -1.3% and -1.4%, respectively, on expectations of an increase. Retail sales were just as ugly, declining by -0.5% in January, on expectations of an unchanged print, with the December 0.2% number revised also into negative territory.
LONDON: Government borrowing costs in Europe's indebted southern countries shot up on Monday as investors began to worry that a vote in Greece could see it become the first country to leave the euro currency bloc. Euro zone debt markets saw a glimpse of the contagion that spooked investors at the height of the debt crisis in 2012, but borrowing costs in Italy, Spain and Portugal were still less than half the levels seen back then.
Marc Chandler submits:Spanish bonds have fallen each day this week. The 13 bp increase today brings the 10-year yield increase to 30 bp this week, easily the worst performing bond market within the euro zone. Portugal has the dubious honor of being in second place with a 19 bp yield increase. Pressure is also evident in the short end of the coupon curve. The 2-year yield is up 19 bp on the day and 32 bp on the week; again easily the word performer over the past five sessions.
A note sent out by analysts at Credit Suisse on Tuesday morning takes a look at yesterday's European business surveys, and explains that while Greece had its worst month ever, Italy powered ahead. Here's what CS economists Mirco Bulega and Sonali Punhani say:
LONDON: German 10-year borrowing costs resumed a fall towards zero on Monday, with worries about Greece exiting the euro zone increasing demand for top-rated assets and with the ECB's bond-buying programme quashes yields. Yields were vanishing across the euro zone. Belgium became the sixth euro zone country to sell five-year bonds at a negative yield after Finland, Germany, Austria, the Netherlands and France. Demand was 1.68 times the offer, despite the average yield being minus 0.056 per cent.
June has been a brutal month for bonds but particularly in the high-yield space, where issuance has cooled after a record run. Junk bond volume has slowed to $7.1 billion this month, the slowest pace since December 2011 and about one-fifth the average monthly total previously in 2013, according to Dealogic.
Is it any wonder Mario Draghi didn't lift a quantitative-easing finger this week? Despite record unemployment, record (and disastrous youth unemployment), record suicide rates, record non-performing loans, and an inextricably-linked banking system facing $3 trillion in exposure to emerging markets... Spanish bond yields have collapsed to their lowest since 2006 (and Italian close behind).
LONDON: European markets are braced for a wave of contagion from Greece on Monday, with heavy losses for southern European government bonds and regional stock markets expected as investors scramble to discount a possible "Grexit" that most had still assumed was unlikely as late as Friday afternoon. Greek Prime Minister Alexis Tsipras late on Friday surprised creditors by calling a snap referendum on what he said were the unacceptable terms offered to keep the country from bankruptcy.
Greek stocks are now down 15% since Q€ started... German stocks are up 3.1% in that period. Europe's broad EuroStoxx 600 closed at its highest since 2000 as Greek government bond yields (and spreads) surged once again. The contagion to the rest of the Europe remains a problem with Spanish and Italian bond risk up 15-20bps since Q€ started. Have and Have-Nots... in stocks...