Euro Plunges, Europe Dives Into Fresh Market Uncertainty On Spanish Woes

Europe was plunged into fresh market uncertainty as the first call for bailout to Spanish region sent borrowing costs surging while Spain and Italy reinstated a ban on short-selling after stock markets fell sharply on fears that Spain perhaps in need of a full blown financial aid. After euro finance ministers failed to stanch a decline in the single currency with the approval of a 100 billion-euro ($122 billion) aid package for Spanish banks last week, the ban by the governments in Rome and Madrid reflected renewed concern that the currency union is far from resolving its crisis.

Stocks and the euro fell as Catalonia joined a list of Spanish regions that may tap aid from the central government, pushing 10-year yields to rise to a euro-era record. The euro slipped below its lifetime average against the U.S. dollar and to the lowest level in more than 11 years against the yen, dropping to $1.2080. Spanish 10-year bond yields rose as high as to 7.57 percent while Stoxx Europe 600 Index dropped 2.4 percent. The slump has been compounded as Spanish Prime Minister Mariano Rajoy confronts 15 billion euros of debt redemptions in regions in the second half of this year. In addition to Catalonia, the most indebted region, Castilla-La-Mancha, Murcia, the Canary Islands and the Balearic Islands may follow Valencia in seeking aid from Madrid, El Pais newspaper reported.
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GBP/USD
U.K. stocks tumbled, for the FTSE 100 Index’s biggest two-day selloff since May, as banks slumped amid renewed concern the euro area has yet to contain its sovereign-debt crisis. Barclays Plc and Royal Bank of Scotland Group Plc (RBS) both slid more than 3 percent as Spanish bond yields surged to a euro-era record amid a report that more regions in Spain may ask for aid. Xstrata fell 3.3 percent as copper declined. The FTSE 100 lost 117.9, or 2.1 percent, to 5,533.87 at the close in London as all 101 companies in the gauge fell.

The broader FTSE All-Share Index also retreated 2.1 percent. U.K. banks and insurers dropped as Italy and Spain reinstated short-selling bans on stocks. Spain’s CNMV market regulator banned the creation of negative bets using all equity securities through shares, derivatives and over-the-counter instruments for three months while Italy’s Consob prohibited the practice on 29 banking and insurance shares for one week.
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USD/JPY
China’s economic outlook was cut by Japan, its biggest Asian trading partner, as the Shanghai Composite Index fell to its lowest level in three years on concern about faltering domestic demand and export growth. Japan’s increased pessimism echoes that of the International which lowered 2013 global growth forecasts this month on Europe’s debt crisis and slower expansions in emerging markets from China to India. Chinese stocks fell to the lowest since March 2009 as weakness in corporate profits threatens to add to the drags on growth from property-market curbs and limited export demand.

Europe’s woes have bolstered the yen’s appeal as a haven for investors, causing the currency to appreciate more than 5 percent against the dollar since mid-March and rise to a 11-year high against the euro. Japanese Finance Minister Jun Azumi reiterated that authorities are ready to take “decisive action” on speculative and volatile movements in foreign-exchange markets. The yen traded at 78.10 against the dollar in Tokyo and the common currency touched 94.56 yen. Japan’s government said that the expansion in China is “slowing a bit,” lowering its evaluation of Japan’s largest trading partner for a third month while leaving its assessment of its own economy unchanged.
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USD/CAD
Canada’s dollar fell to the lowest level in 11 days against its U.S. counterpart on speculation Europe’s debt crisis is worsening as Spanish bond yields rose above 7.5 percent and dimming the outlook for the global economy for the whole portrait. Canada’s currency which tends to appreciate on prospects for its commodity exports, dropped against a majority of its most-traded peers as crude oil fell more than $3 a barrel. Canadian 10-year bond yields reached a record low as investors fled to the safety of government assets. The loonie declined 0.5 percent to CAD 1.0176 cents per U.S. dollar at 3:07 p.m. in Toronto, after touching the weakest level since July 12. It reached a record high CAD 1.2327 versus the euro. One Canadian dollar buys 98.27 U.S. cents.
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