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Pre-Market Primer: Europe Deja Vu Smashes Stocks, Commodities


Creditors giving up, Germany's No. 2 wants Greece out, and short-selling bans. Oh my.


Stocks and commodities are falling as Europe's peripheral economies show further signs of panic.

Following Valencia, the semi-autonomous region of Murcia sought help from the central government in Madrid. Catalonia, Andalucia, and Castilla La Mancha are expected to also have serious difficulty with paying interest on debts. Spanish government bond yields hit a new all-time high of 7.478% for the 10-year note, up 21 basis points today. At this level, is becoming unsustainable for the country to refinance itself.

To service its debt, Mariano Rajoy's government championed tough austerity measures and higher taxes. Voters naturally aren't happy, and these policies probably did not lead to growth. Spain suffered a third consecutive quarter of recession in the three months ending on June 30, the Bank of Spain said. Spain's economy shrank by 0.4% over the quarter. Still, Spain's debt-to-GDP ratio is just 72.1%. This is solidly out of the oft-flouted bounds of the Maastricht agreement, but still far below the eurozone average of 88.2% and Greece's 132.4%. Italy's debt burden is the second highest at 123.4%. Italy's bond yields today rose to levels not seen since the last days of Silvio Berlusconi who has since resigned as Prime Minister. Germany's 10-year yields hit a fresh low of 1.126%.

Greece is pleading for more time to meet fiscal targets. Representatives of the so-called troika of international creditors will return to Athens tomorrow. German vice-chancellor Philipp Roesler has commented that he is "more than skeptical" that the prospect of Greece leaving the eurozone has "lost its horror."

"Of course we will all wait for the troika report in the autumn, but I will say here that I am more than skeptical," he said. "If Greece does not fulfill its conditions, then there can be no further payments to Greece."

Over the weekend, German media reported that the IMF will stop further aid to Greece, making the euro-area's burden even worse. Within hours of one another, exchange regulators in Italy and Spain have both banned short-selling on financial companies for three months.

European stocks sold off today and shares of Spanish banks took a beating on fears that the government could not be trusted to bail them out in the short term. Oil futures dropped 3.62% on global economic concerns to $88.51/barrel, a four-day low. The euro fell 0.55% to $1.20, and to an 11-year low against the yen.

US futures fell on the lousy headlines in Europe. Dow (^DJI) futures fell 1.38% to 12,597. S&P 500 (SPY) futures dropped 1.22% to 1,314.60 and Nasdaq (^IXIC) futures fell 1.40% to 2,567.75

Despite a horrific shooting at the premiere of its newest blockbuster Batman movie from Time Warner (TWX), the film earned $161 million in its opening weekend. This is still lower than the $185 million projected earlier.

Twitter: @vincent_trivett
No positions in stocks mentioned.
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