EmailGreek elections? That's yesterday's news. Today's crisis is a spike in Spanish bond yields.
The Greek elections produced the potential for a coalition government between parties that want to remain in the eurozone. That greatly reduces the risk of an immediate credit crisis. The elections don't, however, do anything to help Greece address its imploding economy and deep fiscal problems. Life in Greece will remain extremely difficult.
The elections produced only a modest bump in S&P futures in overnight trading. This morning, they are now lower. This is largely because Spanish bond yields have spiked higher.
The yield on the Spanish 10-year note rose above 7%. The principles of compounding interest don't change above 7%. A 7.02% yield isn't that much more problematic than a 6.98% yield, but that 7% psychological level has the global financial markets understandably worried. Just weeks ago the yield was near 6%.
The bond vigilantes are extremely worried that the Spanish government will need a bailout. The Spanish bailout announced last week was just for the banks (although it has implications for the government). Spain has a 24% unemployment rate and a stagnant economy. There is indeed the potential for Spain to cause credit contagion throughout the European banking system as the value of Spanish bonds declines.
The problems in Europe are widespread and deep-rooted. They will take years to address.
There are no US economic releases and there is no corporate news of note.
It has been a tough ride for Wall Street lately. Equity trading volume is down from last year and retail involvement is extremely light. Bond trading volumes are reportedly down sharply. June is expected to have zero IPOs. None, nada, zippo. This will be the first time that has happened in 40 years, according to Dealogic. There have been over a dozen IPOs withdrawn since the Facebook debacle. The S&P 500 index is down 4.5% since May 1 despite being up 6.8% for the year.
The calendar shows that we are about 25% through the "sell in May and go away" concept. Stock values will ultimately win out. It just may take a while.
Founder and Chairman, Briefing.com
