The European crisis has taken a toll on the European financial markets over the last couple of years to a level that now, threatens regional problems. The countries which were heavily hit, have sought to acquire various stimulus packages from the economic body, albeit, with no real promise of recovery.
Spain is the latest victim, and the Valencia region of the culture rich country is staring at moments of severe financial crises within its environs. It is for this reason, that the region has said it will seek assistance from the central government, to help unburden it from its staggering debt.
David Einhorn's Greenlight Capital returned -2.9% in the second quarter of 2021 compared to 8.5% for the S&P 500. According to a copy of the fund's letter, which ValueWalk has reviewed, longs contributed 5.2% in the quarter while short positions detracted 4.6%. Q2 2021 hedge fund letters, conferences and more Macro positions detracted 3.3% from Read More
According to a report on CNBC, a Spanish bond auction on Thursday attracted very weak demand from market players, consequently pushing the 10-year government debt yields back above 7 percent. This level is deemed unsustainable under the current market conditions, and this has intensified doubts over whether Madrid can avoid total bailout. The market players were of the opinion that the expected Spanish banking bailout would not slow the rise in debt yields, which in turn will have no impact in stemming the Euro weakness.
Illustratively, the Euro had fallen by 1.13% compared to the U.S dollar, at the time of this writing, to exchange at (EUR:USD)1.2166, just shy of the two year low of 1.2162 realized last week as per our previous post. The CNBC report predicts an exchange rate of 1.2150 in the coming week, which will be another two year low. Simon Derrick, head of currency research, at Bank of New York Mellon, said, “We have still got a market that fundamentally, does not believe that Spain will be able to support herself going forward. The euro will probably stay in a range today, but pressure will return to the downside.”
In another report, we also highlighted that the European Central Bank had lowered the Euro Zone deposit rate to Zero, which is also the benchmark for Euro zone money market rates, thereby hitting hard on the Euro (€). Furthermore, the two year bond yields are now wallowing in the negative territory, as per core triple-A rated Germany, and Netherlands.
Consequently, the market players fear that the negative interest rates are likely to prompt investors, who are bearish on the Euro market, to divest their money to another region, in search of return on capital. Derrick is again, quoted here saying, “If you believe we have a long period of highly accommodative policy in Europe, you might as well go on a search for yield elsewhere.”
The Euro also hit various record, or near record lows against other major currencies. It exchanged at (EUR:AUD)1.1711, against the Australian dollar (AUD), and 1.5198 (EUR:NZD) against the New Zealand dollar (NZD).
In another post, we did highlight that the U.S Federal reserve Committee announced a possibility of quantitative easing, pointing out that the country would only buy more assets if conditions are right. This will in effect continue to weaken the Euro, adding the pressure to the crises, struck zone.
A bank trader for a Japanese bank in Bangkok is quoted saying, “The euro is being viewed as a funding currency, and there are increasingly active moves on the back of that,” which demonstrates why the currency has been on the downhill against major Asian currencies. It fell by approximately 0.75% against the Japanese Yen (JPY) to trade at (EUR:JPY) 95.54 at the time of this writing.