Monday has been an awful weekly start for Spain with the market ruling bearish on concerns about solvency in the Valencia region and the likeliness of contagion to others like Murcia and even Catalonia. Spain is jolting the markets again, extending the bearishness from last week and pouring cold water over any attempt of recovery in the risk trends.
Sentiment continues its bearish mood after Spanish bond yields are hitting euro era highs at the beginning of the week. Spain debt cost rises further on Monday with the 10Y bonds reaching highs of 7.57% and currently being at 7.51% with a 635 points as differential with Germany. Spain is scheduled to go to market on Tuesday on an €3 billion auction.
The pressure over the Spanish sovereign debt seems to continue and it event seems to get worse in line with the prices that Spain has been paying in the last months," comments Mauricio Carrillo from FXstreet.com. "The chart is clearly in an uptrend since February from the 4.9% paid for the 10-year bond."
European markets has been responding accordingly on Monday, following the declines in its Asian peers earlier on, with the Japanese Nikkei plummeting to 6-week lows on market chat about an imminent rescue call from Spain and yen strength.
Luis de Guindos said that the higher premium risk was due to the "situation of irrationality in the markets," and asked ECB to take measures to fight on this. De Guindos also stated, in a Congress testimony, that Spain won't need to ask for bailout in the coming days.
As part of the story, Germany finance minister Wolfgang Schäuble will meet Luis de Guindos on Tuesday to talks on crisis and spiraling bond yields. According to source, Spain would ask €300 billion bailout from the EU and the IMF.
The "Endgame of Eurozone is starting," comments Nouriel Roubini in his Twitter account. "Greece will exit by 2013 while Italy & Spain will need a Troika program after half-baked attempts by ECB to help."
Spain follows Italy and ban short-selling during three months
Spain has decided to ban short selling operations for three months to try to fight markets on the back os "extreme volatil situation across the European market," according to a note published by the Comisión Nacional del Mercado de Valores "CNMV", the Spanish market regulator.
The prohibition will be in force from today to the next October 23 and it "may be extended or lifted if deemed necessary."
Previously, Italian Consob moved in the same direction and it banned short-selling during this week. The measure will be active until Friday July 27th at 16 GMT. The Consob did ban short-selling operations for a month and a half in January 15.
"Today’s price action suggests that someone playing the short Spain versus long Germany took a pounding as a result of the ban on short sales and was forced to unload German issues in response to covering a rapid turn in short Spanish issues," Says Andrew Wilkinson, Chief Economic Strategist at Miller Tabak & Co.
Following the Ban-selling decision in Spain, "ET investors have continued the exercise of short-covering in Madrid. Stocks are still down on the day but are within sight now of the session high. The Ibex is currently trading lower by 2.5%," continues Wilkinson. "Curiously the Dax in Frankfurt saw selling pick-up coincident with the Spanish announcement."
"What had been a gentle decline in German issues all morning suddenly turned into a rout," Wilkinson concluded. "The Dax fell by a further 1.7% from its position at the time of the announcement of 6500."
Murcia next Spanish region to ask for bailout
Headlines over the weekend were hardly kind for Spain as el Pais uncovers that yet another region, this time Murcia, is asking the central government between 200 and 300 million Euros in national rescue funds, amid difficulties funding.
The breakthrough follows news that Valencia is to tap the the recently created emergency-loan fund seeking for as mush as €2 billion, event resulting in panic selling thru Spanish assets last Friday, with many reports dubbing the day as "Black Friday.
As a reminder, Spain has setup a national rescue mechanism worth 18 billion-euro ($23 billion) to help cash-strapped regions. Funny enough, growing evidence suggests that Spain will be running out of money as soon as next September as access to financial markets narrow.
As revealed by El Pais, the Minister of Economy from Murcia, Juan Bernal, asked the media for "calm" to avoid "hysteria." But what Bernal defined as "hysteria" had its origin in a statement of the president of the community, Ramón Luis Valcárcel, which recognises that Murcia will also need financial assistance from the Government.
The Balearic Islands, Catalonia, Castilla-La-Mancha, the Canary Islands and possibly Andalusia are also among the most vulnerable regions that may be needing immediate financial assistance from the central government.
The magnitude of the problem is starting to get so disproportional that the Spanish Foreign Minister Jose Manuel Garcia, indirectly quoted the ECB as an "underground bank" that does nothing to extinguish the debt firestorm. He demanded that Europe should replace the ECB by a much stronger bank, sounding rather desperate. Mr. Garcia added that the Euro area will break apart before long if the gap between German and Spanish risk premium kept the same dynamics.
As Ambrose Evans-Pritchard from the Telegraph reports: "The financial credibility of Spain is close to zero. Fiscal credibility is zero. Political credibility is zero. The new government of Mariano Rajoy has squandered the advantages of its absolute majority in a matter of months, and completely lost the confidence of Europe's institutions. That is the verdict of unnamed EU officials and sources in Brussels cited by El Pais, following the twin crash of the Madrid bourse and the Spanish bond market on `Black Friday'."
Greece is in a 'Great Depression' - Greek PM
Greece Prime Minister Antonis Samaras told former U.S. President Bill Clinton on Sunday the country has sunk in what he calls a "Great Depression" similar to the American one in the 1930s. "You had the Great Depression in the United States. This is exactly what we're going through in Greece - it's our version of the Great Depression" Samaras told Clinton.
Meanwhile, adding fuel to the fire, the German news magazine Spiegel has spooked the market again by reporting the IMF will provide no additional funds for Greece, leading to fears that Greece could file for bankruptcy later this year. Spiegel cited unnamed senior European Union sources in Brussels.