Panic On The Trading Floor

European traders and investors seem to have gone into panic-mood as the global stock markets drops sharply Friday. Stocks and commodities are going down fast, the euro drops to an eight-month low and bond risk soar for a second day on concern European governments will struggle to fund their deficits.

“We are now seeing the development of a very dangerous contagion effect.”

Gary Jenkins


The cost of credit-default swap insurance against a default by Spain, Greece and Portugal rose to a record after European Central Bank President Jean-Claude Trichet failed to allay investors’ concern that indebted euro members threaten the stability of the common currency.

“We have poor numbers coming out of the United States, we have a big question mark over the euro,” Andrew Freris, a senior investment strategist at BNP Paribas Wealth Management, said in an interview with Bloomberg Television in Hong Kong. “What the markets are telling you is we’re not sure about the recovery.”

Greek government bonds fell. The yield on the 10-year note rose 9 basis points to 6.76 percent, widening the premium investors demand to hold the securities instead of German bonds by 12 basis points to 365 basis points.

Credit-default swaps on Greece climbed 19.5 basis points to 446.5, Spain increased 13 basis points to 183 and Portugal rose 9.5 basis points to 239, CMA DataVision prices show. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

“We are now seeing the development of a very dangerous contagion effect,” Gary Jenkins, the head of credit strategy at Evolution Securities Ltd. in London, wrote in a note to investors. “Unless the markets calm down, then corporates that are otherwise healthy may struggle to raise funds because of the location of their business.”

Economist Timothy Gordon at ING says investors `panicking’ on default risks.

Investors are also branching themself for another ugly surprise when the latest U.S. are being released in just a few hours.

Yesterdays jobless claims numbers is seen as a warning.

The weekly labor numbers of new jobless claims have shown a rising tendency in the past four weeks, and is at a level that is not consistent with employment growth. Most economists estimate that the number of new unemployed  should be under 420.000-430.000 for it to be consistent with rising employment. In comparison, it was reported about 480,000 new seats in last week.

The Labor Department report at 8:30 a.m. in Washington may show employment grew for only the second month since the end of 2007. The median forecast of economists for a 15,000 gain includes a prediction by Citic Securities Co. that the economy lost as many as 100,000 jobs, while Patrick Franke at Commerzbank AG in Frankfurt predicts that the same number of workers found employment.

European Markets Snap Shots:

Germany

DAX Index (Relative Strength Index and On-balance Volume Indicator)

EUR/USD


GDP/USD


NOK/USD


GOLD


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