Global Market Report 24 July 2012

US stocks pared triple-digit losses after stumbling as worries about Europe's fiscal health flared back up, pushing US Treasury yields to new lows and boosting the dollar earlier.

Falling hard on the Dow Jones Industrial Average were shares of McDonald's Corp. and Microsoft Corp. as well as Kraft Foods Inc.

What really weighed on the broader market was the prospect that Spain, Europe's fourth-largest economy, might require a sovereign bailout, after another region in the country said it would need financial aid.

According to news outlet La Opinion de Murcia, the Spanish region of Murcia announced it could apply for government bailout funds in September. That comes on the heels of reports on Friday that Spain's Valencia region was seeking help.

US markets are also contending with an earnings season where more than 40% of companies have missed Wall Street revenue estimates so far, and trying to figure out how that will play out in a decelerating economy.

In corporate news, The US Federal Trade Commission has granted approval of Dell's proposed US$2.4 billion acquisition of Quest Software, All Things Digital reports.

US Treasury yields touched new all-time lows as fears escalated that Spain might need a formal bailout and authorities could hold back funding from Greece. At 7:45 AEST, the 10 Year Treasury note was 1.43%, and the 5 Year note was 0.56%.

Italian and Spanish stocks tumbled, as government bond yields skyrocketed and bank shares fell on renewed uncertainty over Greece and growing fears that Spain may require a full bailout.

Trading in major Italian banks was suspended for about an hour during the morning after their shares incurred steep drops, while authorities in Spain and Italy imposed a ban on short selling to stem market volatility. European-listed resource firms also headed south, as oil and metals prices traded lower across the board to start the week.

The Stoxx Europe 600 index tumbled 2.5% to close at 251.75, outpacing a 1.4% loss sustained Friday, when concerns over Spain's debt situation dragged markets lower.

The Spanish government lowered its gross domestic product estimates from this year through 2014 last week, while the region of Valencia said it would seek financial aid as it struggles to refinance maturing debts.

Over the weekend, the region of Murcia also announced it could apply for government bailout funds in September, according to La Opinion Murcia.

Spanish stocks remained under heavy selling pressure with the IBEX 35 index dropping 1.1% to 6,177.40, trimming losses after a short-sale ban was imposed by the country's financial regulator.

Selling pressure also intensified on 10-year Spanish government bonds, sending the benchmark yield 21 basis points higher to 7.42%. The yield earlier hit a new euro-era high. A basis point is 1/100 of a percentage point.

Greece also moved back into the crisis spotlight, following a weekend report in Germany's Der Spiegel magazine that the International Monetary Fund is set to stop aid payments to the struggling country, stoking default fears as the country then may run out money in coming months.

The IMF responded Monday afternoon as a spokesperson said the fund "is supporting Greece in overcoming its economic difficulties. An IMF mission will start discussions with the country's authorities on 24 July on how to bring Greece's economic program, which is supported by IMF financial assistance, back on track."

The so-called troika of international lenders--the European Commission, the European Central Bank and the IMF--are due to arrive in Athens to gauge progress toward the requirements of its bailout program.

The Athens General Index sank 7.1% to 586.04, as shares of National Bank of Greece SA sank 11%.

Euro-zone fears also hammered Italian stocks, where the FTSE MIB index slumped 2.8% to 12,706.36, its lowest closing level since March 2009. Among the major Italian banks, shares of Intesa Sanpaolo SpA fell 1.8%.

The yield on the 10-year Italian government bond rose 17 basis points to 6.31%. The pressure on Italian bonds and stocks emerged as the growing concerns over Spain and Greece spilled over to the country's economy.

Elsewhere in Europe, France's CAC 40 index slumped 2.9% to 3,101.53, its worst daily performance since April.

Banks fell the most in the index, with BNP Paribas SA dropping 5.5%, Credit Agricole SA moving down 5.5% and Societe Generale SA selling off by 4.6%. Danone SA fell 3.2% after Societe Generale cut the yogurt maker to hold from buy.

Banks were also among top decliners in the UK, where Royal Bank of Scotland Group PLC lost 3.3% and HSBC Holdings PLC skidded 3.5%. Overall, the FTSE 100 index closed 2.1% lower at 5,533.87.

Among resource shares, miner Anglo American PLC gave up 4% as oil group Royal Dutch Shell PLC slipped 1.6% in London, while Total SA lost 1.8% in Paris. Oil and prices were off across the board.

In Germany, all stocks ended the day in negative territory and dragged the DAX 30 index 3.2% lower to 6,419.33. Deutsche Bank AG fell 4.6% and Commerzbank AG declined 6.1%.

Bucking the negative trend, shares of Royal Philips Electronics NV surged 5% after results showed the conglomerate swinging to a profit in the second quarter and beating analyst expectations.

Hong Kong stocks slumped 3%, leading Asian markets lower, while the euro slid to multi-year lows against both the dollar and the yen as worries over Europe resurfaced and concerns grew over the Chinese economy.

Hong Kong's Hang Seng Index dropped to 19,053.47, its second-largest drop this year, as investors focused on comments by a senior People's Bank of China advisor over the weekend who said that he expected Chinese domestic demand to remain weak, reinforcing worries about the region's largest economy.

There were heavy losses in other Chinese companies--such as China Unicom and China Shenhua, which were down 3.4% and 2.5% respectively. Stocks in mainland China were less badly affected as the Shanghai Composite dropped by 1.3% to 2,141.40.

When European markets opened down late in the Asian session, the Hang Seng fell even further-- at one point it tested the 3.2% drop it made in mid-May, its worst percentage decline so far in 2012.

The Hong Kong benchmark was dragged down by its largest constituent, HSBC, which sank 5.7%. In addition to the bank's European exposure, analysts say that the US Senate money laundering investigation was also having an effect, and that investors were selling ahead of the company's forthcoming earnings report. HSBC shares in London, were down 2.4% late in the Asian session.

HSBC led a bank sell off across the region as the European debt crisis came back on the scene. In Japan, Nomura Holdings fell by 3.1% and Sumitomo Mitsui Financial Group lost 2.9%; while in South Korea, Woori Finance Holdings sank 3.3%.

There were also concerns about Greece's finances, as the European Central Bank said that it would reject Greek government bonds as collateral.

Asian risk currencies were also affected by the European jitters. The US dollar also gained against the South Korean won, rising to 1,145 compared to 1,141 at the end of the week.

South Korea's Kospi ended the session down 1.8% at 1,789.44, as investors sold banks and energy stocks at the start of a busy week of earnings reports, with releases from major companies like LG Electronics and Hyundai Motor on the slate.

Japan's Nikkei Composite ended the day 1.9% lower to 8,508.32 at a six-week low, as local exporters with a large exposure to Europe were hit by the weakened euro: Sony fell by 4.1% and Sharp fell by 5.2%.

In company news, Suzuki Motor dropped 3.9% in Tokyo, as the carmaker was hampered by uncertainty over the resumption of the operations of its plant in northern India. The company's local subsidiary, Maruti Suzuki India, declared a lockout over the weekend, which it said would continue until local authorities complete an investigation into a riot by some of its workers that resulted in the death of a senior official.

New Zealand market closed 0.04% higher with the benchmark NZX-50 index rising 1.65 points to 3,465.36. Among the leading stocks, Fletcher Building fell two cents at NZ$5.81, while Telecom was up three cents at NZ$2.54.

Base metals closed lower on the London Metal Exchange as euro-zone concerns continued to damp investor appetite for risk-related assets. Gold futures fell as investors worried about finances in Spain and Greece and the US dollar touched a two-year high against the euro.