Wednesday, July 6, 2011

Today's Major Market Move - Portugal Equity Markets Down 2.7% in a Day

After having its debt downgraded to junk status by Moody's, Portugal's broad equity index, the PSI General Index, dropped 2.7% in yesterday's trading session. The PSI 20 Index, which contains the 20 largest Portuguese companies by market capitalization, was down 3%. Many of the usual suspects in Europe experienced significant drops as well, with Italy, Greece and Cyprus equity markets all down by over 2%. Spain came out relatively unscathed by only falling 1.3%.

Yesterday's drop caused the PSI 20 to give back almost all of the recent positive gains that came as a result of the near-completion of Greece's second bailout. The PSI 20 is now down 12% off of its 2011 high.

I haven't yet been able to locate a chart of Portuguese sovereign bond rates, however here's a chart from Bloomberg of the Greek 10 year bond whose rate moved up significantly.

(Click here to go to the chart on Bloomberg.)

The primary concern for the decision makers in Europe has to be that a Greek bailout (the form of which is yet to be finalized) does not bring down interest rates in the remaining PIIGS. If interest rates keep trending upwards in Portugal, Italy and Spain, then we have not seen the last performance of "Bailout Theater". Of additional concern to central banks around the world is that, after a brief respite, most commodities have started moving upward again. WTI Crude Futures (West Texas Intermediate Crude Oil) are heading towards the psychologically important $100/barrel level.

(Click on the images for a larger view.
Click here for the current performance of global equity indexes.
Click here for the current chart of the PSI 20 Index.
Click here for the current chart of WTI Crude Futures.)

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