Shares, euro, oil slide; no respite for Spain
European shares slid from four-month highs and Spain’s borrowing costs climbed back above their 7 percent pain threshold on Friday after one of its heavily. Euro zone finance ministers formally agreed a memorandum of understanding which will allow Madrid to borrow up to 100 billion euros to recapitalize its banks. But the euro and European stocks extended losses after the Valencia region said it would seek central government help to repay debt. Oil prices also eased after hitting an eight-week peak on supply concerns linked to rising Middle East tension, but the rally in soft commodities, which has seen corn and soybean prices soar to record highs, showed no signs of abating. The FTSEurofirst 300 index .FTEU3 of top European shares was down 0.9 percent at 1,055 by 1200 GMT. It closed at its highest level since early April on Thursday, helped by a robust start to the second quarter company earnings season.
In stark contrast, investors are now paying for the privilege of holding shorter-dated government debt of perceived safe havens such as Germany and France, suggesting a high degree of nervousness about the euro zone debt crisis. Something may have to give, although underpinning stock markets at least is the belief that the gloomier the economic horizon, the more likely it is central banks will ride to the rescue with all guns blazing. ”I do see profit-taking coming in sooner rather than later. I don’t see how the UK and European markets can keep ignoring Spanish bond yields at above 7 percent,” JN Financial senior trader Adrian Redmond said of the rally that has seen leading European shares climb more than 3 percent in little over a week.
U.S. stock index futures pointed to a lower open on Wall Street, with futures for the S&P 500 down 0.6 percent and Dow Jones futures down 0.5 percent. The bank bailout deal did not support Spanish bonds, with 10-year debt yields pushing above an unsustainably high 7.0 percent. The country has set aside funds to help its heavily indebted regions but it will put further pressure on its campaign to convince markets it can put its finances right. ”To me it’s only a matter of time before it goes for the full bailout,” a bond trader in London said. The MSCI world equity index .MIWD00000PUS slipped 0.5 percent and the euro fell 0.3 percent against the dollar to a session low $1.2195, staying just above a two-year low of $1.2162. ”(Valencia) was clearly the catalyst. I’m slightly surprised the market has reacted as violently as it has, but I think that’s a reflection of broader negative sentiment,” said Adam Cole, global head of FX strategy at RBC Capital Markets. The single currency dropped to record lows versus the Canadian and Australian dollars. <FRX/>
Grain prices pushed to record highs as scattered rains in the U.S. Midwest did little to douse fears that the worst drought in half a century will not end soon, giving no relief to worries around the world about higher food prices. U.S. new-crop corn rose on Friday, taking its rally to more than 55 percent in five weeks, as crops continued to wilt under searing Midwest heat. Brent crude slipped 1.5 percent to $106.25 a barrel after a near 18 percent surge in four weeks prompted some selling. <O/R> Oil hit an eight-week high on Thursday as escalating fighting in Syria, the bombing of a bus carrying Israeli tourists in Bulgaria and disruptions in output in the North Sea stoked supply fears. A strengthening of the dollar .DXY after a recent slide is also weighing on crude futures.