30 January 2012 at 14:36 GMT
Sell offs in stocks with Portugal debt coming onto the radar
Stoxx 600 is down 1.2 percent as investors are taking some profits on those early year gains as uncertainty is rising in Europe over the Greek PSI that is now overdue by a week. According to German Chancellor Angela Merkel, the negotiations will not end today as banks and other private creditors have still not come to terms with Greece. Meanwhile, today's Italian bond auctions in longer maturities saw a minor dip in auction yields with 2022 bonds yielding 6.08 percent compared to 6.98 percent on December 29. These minor dips in yields are not an outright success and yields on Spanish and Italian 10 year bonds are up 8 and 22 basis points.
A new threat that has been flying under the radar for some time is Portugal which is seeing their 10 year bond yields exploding today by 184 basis points to 17.1 percent (see chart below). Prices on the country's credit default swaps are also soaring and are now signalling a close to 75 percent chance of default. Portugal is in a situation similar to Greece, with zero economic growth and growing debt. It is very likely that Portugal will also go into restructuring negotiations on its debt. The important thing to keep in mind is that Europe has the resources to deal with Portugal and Greece, so the critical line of defense is still in Spain and Italy.
Source: Bloomberg
US futures down, Americans use higher income to restore savings
In pre-market, US data on spending and income in December were released showing personal spending grew zero percent MoM, something that was anticipated following last Friday's 4Q GDP report. Income grew 0.5 percent which was more than the expected 0.4 percent MoM and American used this extra income to restore savings, as the national savings rate climbed to four percent the highest level since August.
Later, Dallas Fed Manufacturing index for January is out (15:00 GMT), expected to come out at 0.5 up from minus 3.0 in December as manufacturing is speeding up again.
Otherwise a quiet day without major earnings, so expect stocks to be heavy throughout the session as no positive news is out there to really lift them.