Euro Crisis Sinks Its Teeth In

05/23/2011 2:51 pm EST


Jim Jubak

Founder and Editor,

Just when you think the euro debt crisis can’t get any worse, it does. Or at least that’s how stock markets see it today.

The bad news from Europe today includes a cut to Italy’s credit rating outlook by Standard and Poor’s, and a smashing defeat by Spain’s ruling Socialist party in local elections, as voters voiced their opposition to budget cuts.

As of 1 p.m. New York time today, May 23, the Dow Jones Industrial Average was down 151 points, or 1.2%. The S&P 500 was down 1.3%, Germany’s DAX was down 2%, London’s FTSE 100 was down 1.9%, Hong Kong’s Hang Seng index was down 2.1%, and the Shanghai Composite index was down 2.9%.

Slovakia’s Slovak Share Index was up 0.93%. (The index isn’t especially important, but it is the only index I can find that’s in the green today.)

The worry from today’s news is that the euro crisis will spread from Greece, Ireland, and Portugal to take in Spain and Italy. The European Union’s rescue fund would be exhausted if Spain needed a bailout.

Today, the euro is down another 0.84% against the dollar, to $1.4042.

As has been the pattern lately, with the dollar up, commodities are down. West Texas Intermediate crude oil is down 2.4%, to $97.39 a barrel. Copper is down 3.2%.

In general, traders and investors are selling risk and buying safety. The yield on the ten-year US Treasury—which falls when Treasury prices rise—fell to 3.11% as of 1 p.m. The yield on the ten-year German bund moved lower as well, to 3.01%.

In contrast, the yield on ten-year Greek government debt climbed to 17.03%. The MSCI BRIC Index of the four biggest emerging markets dropped 2.2%. The index is now down more than 10% from its high on April 8.

Full disclosure: I don’t own shares of any of the companies mentioned in this column in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.

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