There’s an awful lot riding on the markets accepting the workability and credibility of the proposed European support mechanism.
Financial markets in Australia, New Zealand, Japan, and then the rest of Asia will take the brunt of the reaction to the EU announcement today.
It may be a good day to sit and watch, and if you have margin loans, check they are adequately covered.
After sharemarkets went negative for the year last week, confidence is fragile and a poor reception for the announcement will see a further sell-off in an echo of the days after the collapse of Lehman Brothers in late 2008.
It’s not that there has been a trigger like Lehman’s failure, it’s that having been badly burned once, markets and investors are scared Greece will turn into a repeat, even though the eurozone economies and the IMF have put in place a back stop to prevent an immediate default.
That failed to convince last week and Thursday’s trading glitch in the US unnerved investors around the world.
Bank liquidity came under pressure on Friday and the Bank of Japan injected $US22 billion into Japanese financial markets to calm fears of liquidity strains.
It will probably do more today, and don’t be surprised if other central banks around the world follow its lead.
Even a few days of liquidity fears could be enough to end the fitful economic recoveries in Europe and the US.
Major markets finished Friday 1% to 3% lower on Friday.
The weekly declines for the Dow and the S&P 500 were the largest since March last year when the markets hit 12-year lows.
The Nasdaq suffered its largest weekly drop since November 2008.
The Dow Jones closed down 139.89 points, or 1.3%, to 10380.43.
It was down 5.7% for the week, and the 772 point fall over the week was the worst since October 2008.
The S&P 500 was off 1.5% for the session, while Nasdaq was down 2.3%, putting it in correction territory from its April 26 high.
For the Dow, it was the worst five days of May ever.
It was also the worst May start for the S&P 500, whose 6.4% loss topped the index’s early May tumble in 1930, a reminder that the Depression still hasn’t faded from the market’s collective memory.
US markets ignored the best jobs news in four years: 290,000 new jobs last month, March’s 162,000 rise upgraded to 230,000.
The US unemployment rate jumped to 9.9% from 9.7%, because 850,000 people rejoined the ranks of those looking for work.
Normally such a great bit of news would have seen US stocks rally strong, but while there was a blip, it couldn’t last and the fears about Europe and its banks pulled shares lower for the day and week.
In Europe shares had their worst week in 18 months.
The Stoxx Europe 600 index fell 3.9% to 237.19, bringing losses for the week to a massive 8.8%.
That’s the largest weekly percentage drop for the index since late November 2008 when it fell 11.5%.
Friday saw France’s CAC 40 down 4.6%, London’s FTSE 100 lost 2.6% and Germany’s DAX was down 3.3%.
Britain’s inconclusive elections ended in a hung Parliament, with none of the ruling parties possessing enough seats for majority rule, a situation talks over the weekend failed to resolve.
For the week indexes fell in all 18 western European markets, led by Spain’s IBEX 35, which plunged 14%.
Greece’s ASE Index lost 13%, Portugal’s market shed 11%.
London fell 7.8% and will fall further tonight if the talks on a new government remain unresolved today.
Asian markets fell with the MSCI Asia Pacific Index losing 5.9%, its biggest weekly loss since February of last year.
Friday saw the Nikkei losing 3.1% and Hong Kong’s Hang Seng down 1%. The Australian market was down 2%.
Over the week, the Nikkei lost 6.3% in two days after being shut from Monday to Wednesday.
Shanghai lost 6.4%, to be close to 20% down this year, Hong Kong’s Hang Seng Index lost 5.6%, South Korea shed 5.4% and Australia sank a nasty 6.8%.
