Tuesday, August 2, 2011

Today's Major Market Move - Swiss Equity Market Declines Over 4% in Today's Trading Session

Now that the U.S. has successfully forestalled the debt default that no one in their right mind thought was going to happen to begin with, the doom-and-gloomers have refocused their attention to Europe. European equity markets took it on the chin earlier today with the Swiss market seeing the worst of it by dropping 4.7%. The following table shows the top 13 global equity index decliners in the past 24 hours.

Click on the image for a larger view.
Click here to view the table with the most recent data.

Europe is well represented in that table. Many of those indexes have collapsed through their 2011 lows, even after the bounce from Greece Bailout 2.0. I've taken several of those equity indexes and put them in the following line chart. The right axis is in terms of % gains/losses.

Click on the image for a larger view.
Click here to view the chart with the most recent data.

Further weighing on the Swiss equity markets is the strengthening Franc, which we discussed in a post last Tuesday. The following chart shows the high correlation between the Swiss currency and the Swiss equity indexes.

Click on the image for a larger view.
Click here to view the chart with the most recent data.

The Greek bailout has not had the desired effect of stemming the contagion. Italian and Spanish bond prices hit new highs today and eventually both Italy and Spain will require bailouts as well. From Reuters:

Yields on 10-year Italian and Spanish debt rose sharply on Tuesday, surpassing recent peaks to reach their highest since 1997, while the risk premium over German debt on both countries' bonds hit the highest since the launch of the euro.

Five-year Italian yields rose to hit parity with their Spanish equivalent in a sign that the once-resilient confidence in Italian finances had been seriously eroded.

Analysts expected those borrowing costs to keep rising, potentially providing for a tricky backdrop to a sale of Spanish debt later this week.

"In the near term, I am struggling to see any signs that the EU or the Italian and Spanish politicians are ready to offer something up to calm the markets and so by no means would I be assuming that we have seen the highs for BTP and Spanish yields already," said John Davies, fixed income strategist at WestLB.

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