One of the PIIGS is beginning to squeal, Portugal’s bond yields rise past the critical 7% yield to 8%.
Bond traders have been selling Portuguese debt this morning, in turn driving down its price and as a consequence pushing up the interest rate (yield) on the bonds. The yield was trading at below 6.5% on Monday morning, the yield on 10-year Portuguese debt this morning has now hit 8%, according to Tradeweb data. In layman’s terms it means that Portuguese debt is seen as increasingly risky. Historically the seven percent level is looked upon as a demarcation line in the sand; a tipping point that if crossed countries then struggle to pay back and to pay down their debt.
Portugal appears to be in a similar situation to Greece, in as much as the austerity measures have abjectly failed to produce any growth, instead heaping misery on sections of society. The damage has devastated Portuguese youth unemployment numbers – the public protests are growing in numbers and frustration levels daily. The Portuguese finance minister resigned on Monday in ‘protest’ at the failings of the austerity programme. It’s now being rumoured on the twitter ‘blogosphere’ that two other ministers may resign, thereafter the Eurozone could be looking at the crisis bringing down yet another government. The resulting effect on the Portuguese stock market has been dramatic, equities on the PSI are currently down 6.5% at the time of writing.
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European PMIs published this morning by Markit economics were encouraging
The UK’s latest service sector PMI has just been published and the figure is above the analysts’ expectations of 54.6. At 56.9, the UK service sector PMI was the highest witnessed since March 2011. Intriguingly this figure illustrates that the UK service sector is outperforming the eurozone economy and based on these numbers the UK economy probably grew by at least 0.5% in the second quarter. Many of the Eurozone service sector PMIs also reached recent highs, causing analysts and market commentators to consider that, despite the EZ still being mired in recession, the bottom may have been reached.
Ireland: 53.2 – 5-month high
Germany: 50.4 – 3-month high
Spain: 48.1 – 24-month high
France: 47.4 -10-month high
Italy: 47.0 – 21-month high
Market snapshot at 10:30 GMT (UK time)
Major European Indices
Despite positive PMI service sector data from Markit for the majority of the major Eurozone members and the UK, the major European equity indices are down significantly at the mid-stage of the London session. The Portuguese situation and the lack of progress as the troika visits Athens are weighing heavily on current market sentiment.
As previously mentioned the Portuguese PSI is down 6.5%, the UK FTSE is down 1.55%, the DAX is down 1.92%, the CAC down 1.84%, MIB down 2.05% and the Athens exchange down by 2.29%. The European STOXX index is down 2.09%. Looking towards the New York open the DJIA equity index future is currently priced 0.58% down, suggesting that the US market will open down.
Commodities; oil breaches $100 per barrel
Oil is up significantly in the morning session as a consequence of geo-political fears that the current struggle in Egypt could throttle supply through the Suez Canal, 2.24 million barrels a day travel through the Suez Mediterranean Pipeline according to the latest EIA information. ICE WTI crude is up 1.37% at 100.97 per barrel whilst Brent crude is up 0.62% at 104.65 a barrel. Comex gold is up 0.55% at 1,250 per ounce. Silver priced on the Comex exchange is up 0.81% priced at 19.46 per ounce. Copper on Comex is up 0.54% at 3.16.
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Cable reacted favourably to the positive UK service sector PMI, on an intraday basis the pattern is bullish, the currency pair has crashed up through the daily pivot and breached R1 upon the news release. However, both the daily and weekly trend charts for GBP/USD are (so far) unaffected. The euro is being driven lower as a consequence of the Portuguese situation, The euro fell 0.4 percent to $1.2931 in the London session after declining 0.7 percent yesterday. The 17 nation shared currency also slid 1 percent to 129.28 yen, its biggest decline since June 14th.
Yen strengthened 0.7 percent to 99.98 per dollar after depreciating to 100.86 yen, the weakest level seen since May 31st. The euro has climbed 4.6 percent so far this year, according to the Bloomberg Correlation-Weighted Index which tracks the 10 most developed nations’ currencies. The dollar has gained 7 percent and the yen has slumped 8.6 percent.
The Aussie dollar dropped to 90.70 U.S. cents in the Asian session, the least witnessed since September 2010, before trading 0.8 percent lower at 90.76. It declined 0.7 percent to 91.39 yen. The Aussie lost 0.5 percent to NZ$1.1743 after earlier touching NZ$1.1738, the weakest level witnessed since December 2008.
New Zealand’s, the kiwi, depreciated 0.3 percent to 77.29 U.S. cents and 0.2 percent to 77.83 yen.