What we' ve seen in the past two days in markets is commonly called a "risk off" scenario.
Market participant are suddenly realizing the overall economic situation is not as nice as it appeared and they are massively getting rid of risky assets; the Euro,the Aussie, the Kiwi, Gold and Silver dropped significantly.
Oil is at the lowest level of the past 3 months, the U.S. dollar and the Yen are rising and all major indexes in Europe and Asia are heavily heading down.
Wall Street is holding, but if we take a closer view of the past two trading days in the U.S. we can notice market opened with a big drop to recover at around 11 a.m. EST, just when European markets closed for the day.
This is not a coincidence, in fact, most of the bad news are coming from Europe: Greece, after the elections held on Sunday is facing a political situation that will probably bring the country to new elections.
image © Daniel Steger for openphoto.net CC:Attribution-ShareAlike
None of the parties is able to form a coalition government, the numbers are simply not there to form a stable coalition and Mr. Tsipras, the politician who is supposed to form the government instead of Mr. Samaras who couldn't form it without the consensus of the second political force elected, already said the measures adopted to bring the desperate financial situation of the country back in track will be re-discussed.
Of course this is not good news for the financial institutions who saved the country from bankruptcy and a new bailout will probably be necessary. Will Greece leave the Euro? What was considered a taboo is now been taken into consideration and major banks across Europe are preparing to this event that could undermine European confidence. Is Europe and the Euro really just an experiment as some american academics has always alleged or the Euro is here to stay? History is teaching us all monetary unions has not survived after the the first decade so the Euro would be the exception.
On the other side, European banks are, once again, under pressure; Bankia, the third biggest Spanish Bank had to be nationalized, the State had to purchase 45% of the Bank in order to keep it alive and avoid a Tsunami that is barely comparable to what Lehman Brothers was in 2008. Analysts around the world are starting to think: who will be next? Dexia ,who was massively helped by French, Belgian and Luxembourg intervention to avoid the collapse or maybe the Italian Monte dei Paschi di Siena who booked major losses during 2011 ( something around 8.5 billions €)?
Or maybe Royal Bank of Scotland who had to be saved by the U.K. or even CommerzBank who was taking big loans from the exceptional LTRO issued by the ECB witch gave the continent relief basically giving money almost for free at 1% interest rate for three years?
Looking at Asia and the rest of BRICS we notice that the so called emerging economies are actually taking the role emerged economies once had, being now the locomotives of the world.
But for how long will China grow at this pace? We are already seeing a slowdown from the double digit growth rate we where used to, China's growth is now close to 8% and the quinquennal plan did not gave any solution on how to boost internal
consumption of goods in order to make China less dependent from export. Salaries are growing but they will have to grow much more to see the Chinese middle class taking part to the Real Estate market witch will probably be the next bubble if those hundreds of thousands of houses and apartaments don't find a owner.
In conclusion the crisis is far from being over and maybe the best start of the year for equities we've seen in years will just remain a year that started well to pull back in the second half, something we've already seen in 2010 and 2011.
image © bman ojel
for openphoto.net CC:Attribution-ShareAlike
agenzia delle entrate; equitalia
Market participant are suddenly realizing the overall economic situation is not as nice as it appeared and they are massively getting rid of risky assets; the Euro,the Aussie, the Kiwi, Gold and Silver dropped significantly.
Oil is at the lowest level of the past 3 months, the U.S. dollar and the Yen are rising and all major indexes in Europe and Asia are heavily heading down.
This is not a coincidence, in fact, most of the bad news are coming from Europe: Greece, after the elections held on Sunday is facing a political situation that will probably bring the country to new elections.
image © Daniel Steger for openphoto.net CC:Attribution-ShareAlike
None of the parties is able to form a coalition government, the numbers are simply not there to form a stable coalition and Mr. Tsipras, the politician who is supposed to form the government instead of Mr. Samaras who couldn't form it without the consensus of the second political force elected, already said the measures adopted to bring the desperate financial situation of the country back in track will be re-discussed.
Of course this is not good news for the financial institutions who saved the country from bankruptcy and a new bailout will probably be necessary. Will Greece leave the Euro? What was considered a taboo is now been taken into consideration and major banks across Europe are preparing to this event that could undermine European confidence. Is Europe and the Euro really just an experiment as some american academics has always alleged or the Euro is here to stay? History is teaching us all monetary unions has not survived after the the first decade so the Euro would be the exception.
On the other side, European banks are, once again, under pressure; Bankia, the third biggest Spanish Bank had to be nationalized, the State had to purchase 45% of the Bank in order to keep it alive and avoid a Tsunami that is barely comparable to what Lehman Brothers was in 2008. Analysts around the world are starting to think: who will be next? Dexia ,who was massively helped by French, Belgian and Luxembourg intervention to avoid the collapse or maybe the Italian Monte dei Paschi di Siena who booked major losses during 2011 ( something around 8.5 billions €)?
Or maybe Royal Bank of Scotland who had to be saved by the U.K. or even CommerzBank who was taking big loans from the exceptional LTRO issued by the ECB witch gave the continent relief basically giving money almost for free at 1% interest rate for three years?
But for how long will China grow at this pace? We are already seeing a slowdown from the double digit growth rate we where used to, China's growth is now close to 8% and the quinquennal plan did not gave any solution on how to boost internal
consumption of goods in order to make China less dependent from export. Salaries are growing but they will have to grow much more to see the Chinese middle class taking part to the Real Estate market witch will probably be the next bubble if those hundreds of thousands of houses and apartaments don't find a owner.
In conclusion the crisis is far from being over and maybe the best start of the year for equities we've seen in years will just remain a year that started well to pull back in the second half, something we've already seen in 2010 and 2011.
image © bman ojel
for openphoto.net CC:Attribution-ShareAlike
agenzia delle entrate; equitalia
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