fundamental analysis July 24th 2012

Euro slumps broadly on Spain bailout fears

The euro fell to a two-year low against the U.S. dollar and a nearly 12-year trough against the yen on Monday on fears Spain is edging closer to needing a full-scale bailout that the euro zone cannot afford. Ten-year Spanish bond yields jumped as high as 7.596 percent, the highest since the euro was created in 1999. That saw the euro drop for a fourth straight day against the dollar to hit a low of $1.2067, the weakest since June 2010.

Traders and analysts say the euro looks poised to take out the key $1.20 threshold. A break beneath that could see the currency head towards its June 2010 low of $1.1875, which marked the weakest since March 2006.
    

"With the 10-year yield above 7 percent and quickly approaching 8 percent, we're at that moment where it starts to look a lot more real than it was even just a few weeks ago," said John Doyle, foreign-exchange strategist at Tempus Consulting in Washington, referring to a full-scale sovereign bailout for Spain.
    

Adding to pressure on the euro was a weekend report that the International Monetary Fund may refuse to contribute further funding for Greece. The IMF dismissed the report, saying it was "supporting Greece in overcoming its economic difficulties."

Pain in Spain hits Wall St

U.S. stocks fell for a second straight session on Monday, as Spain appeared closer to needing a national bailout and poor corporate results weighed on the market.Weak results from McDonald's Corp added to the cautious tone on Wall Street. Materials stocks were among the day's weakest, hurt by across-the-board declines in commodity prices.
   

Still, stocks ended well off the day's lows, rebounding from their initial plunge. Stocks appeared to stabilize as the S&P 500 approached its 50-day moving average of 1,332.98, a technical support level that could trigger more losses if convincingly broken.
   

Overall, three stocks fell for every one that rose on the New York Stock Exchange on Monday, a signal that the afternoon rebound was concentrated among larger-cap shares. On the Nasdaq, about four stocks fell for every one that rose.
   

"The sell-off this morning was overdone, and obviously, the market felt that way, too," said Eric Green, senior portfolio manager and director of research at Penn Capital Management in Philadelphia, which oversees $6.5 billion.
   

"Nothing incrementally negative came out, but obviously, we're still worried about the situation there.The Dow Jones industrial average <.DJI> fell 101.11 points, or 0.79 percent, to close at 12,721.46. The Standard & Poor's 500 Index <.SPX> declined 12.14 points, or 0.89 percent, to 1,350.52. The Nasdaq Composite Index <.IXIC> shed 35.15 points, or 1.20 percent, to close at 2,890.15.

Gold off lows on safety bids, outperforms equities

Gold slipped on Monday as Spain's economic troubles fueled euro zone debt fears, but safe-haven bids pulled bullion off session lows, as it outperformed equities and other commodities. Gold came under early pressure from tumbling U.S. equities and crude oil after Spain said it sank deeper into recession in the second quarter. Many investors worried the euro zone's No. 4 economy was closer to seeking a full bailout.
    

Gold pared losses as the euro rebounded after the International Monetary Fund said it would start discussions with the Greek authorities on July 24 on how to bring Greece's economic program back on track.
   

Last week, worries about a global economic slowdown and deflation sent bullion slumping toward $1,560 an ounce several times, but gold held above that level. The metal has been moving in a range between $1,527 and $1,655 in the past three months.U.S. COMEX August gold futures <GCQ2> settle down $5.40 at $1,577.40 an ounce, with trading volume in line with its 30-day average, preliminary Reuters data showed.

Oil Tumbles Most This Year on European Debt Crisis

Oil plunged the most this year on concern that Europe’s sovereign-debt crisis is deepening and as a Chinese central-bank adviser said the country’s economic expansion may slow further. Futures fell 4 percent as the cost of insuring Spanish debt surged to a record. Greece’s creditors will gather this week amid doubts that the nation will meet bailout targets. Growth in China, the second-biggest crude consuming country, may cool for a seventh straight quarter, said Song Guoqing, a member of the People’s Bank of China monetary policy committee.

“Worries about the European debt crisis are overshadowing everything else,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The prospect of a deflationary spiral is back haunting us, especially given the signs of a Chinese slowdown. This is bad for the outlook for commodity demand, especially oil.”
 

Crude oil for September delivery fell $3.69 to settle at $88.14 a barrel on the New York Mercantile Exchange. It was the biggest decrease for a front-month contract since Dec. 14. Prices are down 11 percent this year.

Nikkei seen falling as Spain worries grow

Japan's Nikkei share average is likely to fall on Tuesday after worries that Spain may not be able to avoid a bailout pummelled risk assets on global markets. Investors are also concerned that Japan's earning season, which starts in earnest later this week, is unlikely to give the market a fillip as companies brace for a slowdown in the global economy.

On Monday the Nikkei shed 1.9 percent to 8,508.32 <.N225>, its lowest close sine June 8. The broader Topix index <.TOPX> slipped 1.8 percent to 720.62, having fallen in 11 of the past 12 sessions. World equity markets sold off and the euro set new two-year lows against the U.S. dollar on Monday after reports that more indebted regions in Spain need financial aid fueled fears that the country may need a bailout.
 

As losses mount, retail Japanese investors with long positions in margin trading may also be forced to liquidate positions to access collateral, adding to the downward pressure, an analyst at a Japanese brokerage warned.

Seoul shares seen extending falls on Spain bailout fears

Seoul shares are expected on Tuesday to extend their decline from the previous session, as fears that Spain could be pushed into seeking a bailout continue to sap investor appetite for risk. U.S. stocks fell for a second straight session on Monday but ended well off the day's low, rebounding from an initial plunge and stabilizing near the S&P 500's 50-day moving average.

Still, investors will be taking aggressive bets off the table after Spanish media reported up to half-a-dozen more regions may follow Valencia in requesting central government aid, pushing Spanish bond yields to a euro-era high of 7.5 percent, well above the 7 percent danger threshold. The Korea Composite Stock Price Index (KOSPI) <.KS11> dropped 1.84 percent to a one-and-a-half week closing low of 1,789.45 points on Monday.

Hong Kong stock market to delay opening due to typhoon

Hong Kong's stock market will delay its opening on Tuesday morning due to Typhoon Vicente. Should the typhoon signal of 8 and higher remain in force after 9 a.m. (0100 GMT), the Hong Kong stock exchange will remain closed in the morning. If the signal of 8 or higher is still in place by noon, the stock markets will be closed for the whole day.


Source : Reuters