Merkel remaining firm, Stocks & Commodities fall

Germany Chancellor Angela Merkel spoke at a conference in Berlin on Monday where she hardened her stance against those calling for more joint liability in the Eurozone. Her position does not bode well for the forthcoming 2 day EU summit in Brussels, where it is believed other European leaders were looking to press the German leader once again on that very agenda. After the conference, confidence in there being some sort of resolution waned and the US stockmarkets were hit with the S&P500 & Nasdaq falling 1.5% & 2.0% respectively.

Merkel said that she was concerned that the summit, which starts on Thursday, will be dominated by all kinds of ideas for joint liability and far too little about improved oversight and structural measures. She once again dismissed Eurobonds, Euro bills and European deposit insurance with joint liability, saying they were ‘economically wrong, counterproductive & against the German constitution’. Merkel’s stance was reiterated on the same day that Spain confirmed it would formally ask for up to €100 billion in aid for its banks and Prime Minister Mariano Ranjoy said he would press on for the best possible terms for the assistance.

Share markets & commodities were hit hard as the MSCI World Index fell for a third consecutive day losing 1.5% with the S&P 500 & Stoxx Europe 600 Index retreating by the same amount. Oil also fell another 1.1 due to growing fears that the EU summit will fail to stop the ongoing debt crisis.

However, there was some good news out of the US, with sales of new homes rising 7.6% seasonally adjusted, the highest in over 2 years. The housing market was one of the main aspects of the global recession in 2008 and the Fed’s Operation Twist appears to be gradually recovering the housing market. US Treasury 10 year yields declined a further 6 basis points to just 1.61 whilst German 10 year Bunds fell 12 basis points as both are regarded as safe havens in times of turmoil. The Spanish 10 year yields rose by 26 basis points to 6.60%, unwinding some of the gains it made over the last week, where it fell by over 1% after it reached 7.04% last Wednesday as per the graph below.

The news overnight saw the Euro fall further against the USD slipping below 1.25 but the Kiwi is relatively unchanged hovering around .6300. The NZDAUD cross is slightly higher above .7860 while against the USD it is off marginally around .7850.

Spanish yields remain lower despite last night's uptick