Daily Market Reports | Jun 01 2010
By Greg Peel
The US markets were closed last night for Memorial Day and the UK markets were closed for a Bank Holiday, which leaves us with a rather brief Overnight Report this morning.
Those who were paying attention, nevertheless, were keen to see just how mainland European stock markets would respond to the downgrade of Spanish sovereign debt announced by ratings agency Fitch just after the close of markets on Friday.
The short answer is: there was no reaction to speak of. The Spanish stock market lost 0.7%, but Germany was up 0.3% and France down 0.2%.
As I noted in The Monday Report yesterday, the fact that Fitch might implement a behind-the-curve downgrade of Spanish debt is hardly a surprise and no reason to effectively sell for a second time. Rival agency Standard & Poor's had already dropped Spain from AAA, although there's been nothing from Moody's as yet. The downgrades follow a blow-out in the cost of Spanish debt, as affected by movements in bond prices along with a general concern that required Spanish austerity measures, if passed in parliament, will stymie economic growth.
It's not rocket surgery.
It's now over to France to tighten up its own budget (every eurozone member is running a budget deficit, including Germany, and every member is in breach of the EU's 3% of GDP limit). The French parliament must consider a revised budget bill tonight before moving to an expected passage of required legislation for France's contribution to the EU's E440bn currency stability fund. The EU has joined the IMF to pledge E760bn in total for defence of the euro.
That the stability fund was announced weeks ago and we're still waiting as each EU member casually gets around to passing required legislation is testament to both European tardiness and a flawed eurozone model, in which there is insufficient central power to control a vital central currency with expedience. It is also a reason why global financial markets remain on a knife-edge and nervousness will probably not begin to ease until the defence fund is bedded down.
There were no commodities to follow last night although spot gold has added another US$1.90 to US$1216.20/oz over 24 hours and the US dollar index is slightly lower at 86.51. The Aussie remains steady at US$0.8474.
With not much to go on, the SPI Overnight fell 17 points or 0.4%.
It will be a busy day on the economic front today. The RBA will leave its cash rate on hold at 4.5% this afternoon, but prior to the statement release we will learn April retail sales and building approvals and the May AiG performance of manufacturing index. China will also release its PMI today, with both the official version and unofficial HSBC version hitting the wires at the same time.
The PMIs will then roll around the globe through the UK, eurozone and US tonight.
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