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Worst day for stock markets in three months as eurozone crisis resumes and US data disappoints

Posted on 05 February 2013 with no comments from readers

Perhaps when the Dow crosssed 14,000 the US markets had just gone too far, too fast. But yesterday’s mini-rout in global stock markets suggested a somewhat deeper malaise is setting in that could take stocks down a lot further.

The damage to eurozone markets was much worse with deeper falls across the board. That’s because the eurozone is again the epicentre of the world’s economic problems. Spanish and Italian bond yields jumped on political instability with a financial scandal leading to calls for the resignation of Spain’s prime minister and Mr. Berlusconi gaining in the Italian opinion polls before a general election due in three weeks.

US concerns

This rather overshadowed some poor company financial results on Wall Street and some disappointing US factory data. But if you wanted evidence that US markets were ahead of reality this was the wake up call.

What happens next? Money piled into short ETFs yesterday which recorded outsized gains. That indicates investors loading up for a market reversal, not just picking up gains as the market reverses.

There’s also much talk in the market that billionaire investors including Warren Buffett have been heavy sellers into the final stages of the rally this January. Usually there is no smoke without fire. It would not be the first time the smart money moved out as the fools moved in.

Euro Black Swan

However, whatever US investors think of their own economic recovery they will be mindful that the eurozone has dealt markets some significant blows over the past few years. Just as you thought it was safe to go out on the street another Black Swan came hurling out of the sky from Europe.

German chancellor Mrs. Merkel warned in the New Year that the eurozone crisis was ‘far from over’ and nobody listened. If you read the boring financial newspapers there are many articles that tell you that the eurozone banking union is already a sham thanks to the efforts of national bureaucrats to frustrate this federalism.

If we are really back to square one with Spain and Italy in the firing line and not lesser fry like Greece and Cyprus then the global financial crisis is indeed about to take another turn for the worse and financial markets will be heading down from here.

Posted on 05 February 2013 Categories: Banking & Finance, Bond Markets, Global Economics, Hedge Funds, Investment Gurus, Sovereign Wealth Funds, US Stocks

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