(menafn – ecpulse)
With the start of another session this week, tension returns to dominate the European market as we can see the euro continues to fluctuate heavily within a tight range, where the currency is affected sharply by renewed fears Spain might fall following other indebted nations that sought bailouts earlier, starting with Greece, Ireland and Portugal.
Yesterday, pessimism dominated the European session, while the euro and European equities declined sharply as Europeans returned to markets and reacted to the downbeat jobs report from the world's largest economy.
Today, markets continues to be volatile as debt concerns are dominating the market amid the tension seen in the debt market, where Spanish and Italian yields closed the session yesterday higher, adding 3.78% and 4.28% respectively forcing the benchmark bonds of both nations to lose 1.57% and 1.72% respectively.
Moreover, the Bank of Spain clarified yesterday that banks should raise capital in case the economy deteriorates, where concerns are mounting Spain may follow Greece's steps into the debt trap. Therefore, Spanish banks should shield their existence by keeping more capital to fight the debt crisis and to prevent the fall of the financial sector.
The Chairman of the Federal Reserve, Ben S. Bernanke, called on banks as well to raise capital and strengthen their financial positions, where the Chairman clarified that more funds are needed to be in reserve in order to ensure the financial system is stable and secure.
Bernanke explained that regulators are to take some steps to force financial entities to hold more capital saying "we need to have higher capital, and that's what Basel III does," adding "that's essential for a stable financial system."
The pressures intensify as a survey conducted by the Bank of France showed that the French economy is likely to shrink in the first quarter of this year, compared with the previous expansion of 0.2%, where the second largest economy was expected to continue the pace of recovery, but the deteriorating economic condition, the austerity across Europe and the escalating debt crisis all raised fears in the market and support tension to return, and in result added more pressures on economies to contract, affected significantly by debt concerns and the global slowdown.
Today, the largest economy in the euro zone and Italy are set to auction bonds, where this event will be a good test to determine whether the tension in the debt market is limited to Spain or it will expand and send borrowing costs in general to the upside.
Italy will start selling bonds before Germany, as the nation will auction 3-billion euros of 3-month notes and 8 billion euros of 1-year bonds. After then German will auction 5 billion euros of the benchmark 10-year bonds.
Finally, we expect markets to remain volatile and fluctuate heavily ahead of the awaited events and also as markets are still analyzing how Spain will likely avoid falling behind and seeking bailout such as Greece and other indebted nations, especially when the nation keeps on adopting more austerity, which on the near-term might hurt growth sharply and send unemployment higher, noting that Spain handles the highest rate of jobless in the euro-area region that reached recently 23.6%.