Wednesday, July 25, 2012

Today's Major Market Move: Spanish Stock Market Drops Over 30% Year to Date

The economic situation in Europe is the crisis that keeps on giving. Despite multiple bailouts and central bank interventions, conditions continue to deteriorate, the latest example being the Spanish stock market hitting a new swing low on Tuesday. The benchmark Ibex 35 Index is down over 30% for the year and has dropped below the floor set by the bailout at the end of May.

Click here to go to the live chart.
If we expand over view back to before the 2008 crisis, the view isn't much prettier.

Click here to go to the live chart.
With Spanish stocks plumbing new lows, we go on alert for central bank intervention. However lets check on the Euro and oil prices in order to gauge how much room for action the ECB has.

Click here to go to the live chart.
The Euro has been on a steady weakening trend since the end of April, having declined in value by over 9% against the US dollar. And now here's Brent front month contracts:

Brent is well off the highs we saw earlier in the year although it has seen a decent pop over the last month. The cost of gas in real terms for Europeans is less now then it was back in Feb/March so we think the ECB is going to act, more than likely within the next week and a half. The economic environment has entered into the realm of the surreal, with several German Bund denominations in negative territory. The battle for Spain may already be lost but we feel that the ECB is not going to sit by and watch the same thing happen to Italy, who happens to have a debt level 140% larger and a gdp 50% larger when compared to Spain's.

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