Stocks continue to tank as fears over Italy debt auctions resurface

AP and AFP

LONDON/HONG KONG– Stocks took another pounding Friday after Italy’s borrowing rates ratcheted higher following a pair of hugely disappointing auctions from the eurozone’s third-largest economy. The auction results are another sign that Italy’s new technocratic government faces a big battle to convince the markets it has a strategy to get a grip on the country’s massive debts. It also served as a reminder that Europe’s debt crisis has clearly spread from its relatively small economies to the bigger countries such as Italy and Spain. Italy had to pay an average yield of 7.814 percent to raise 2 billion euros (US$2.67 billion) in two-year bills. That rate was sharply higher on the 4.628 percent it had to pay in the previous auction in October. And even raising 8 billion euros (US$10.7 billion) for six months proved exorbitantly expensive. The yield for this auction spiked to 6.504 percent, nearly double the 3.535 percent rate in the last equivalent auction last month. Following the grim news on the auction front, Italy’s borrowing rates in the markets skyrocketed, with the ten-year yield spiking 0.34 percentage point to 7.30 percent, above the 7 percent threshold that is widely considered unsustainable in the long-run and which eventually forced Greece, Ireland and Portugal to seek financial bailouts. Against this backdrop, markets in Europe continued their long losing streak. Germany’s DAX was down 0.6 percent at 5,396 while the CAC-40 in France fell 0.7 percent to 2,802. Britain’s FTSE 100 index of leading British shares was 0.5 percent lower at 5,101 but Italy’s main FTSE MIB index underperformed them all, trading a full 1.8 percent lower. Wall Street was poised for a lower opening too though trading is expected to be fairly light as many traders will remain away for a long Thanksgiving holiday weekend. Dow futures were 0.7 percent lower at 11,160 while the broader Standard & Poor’s 500 futures fell 0.8 percent to 1,151. Aside from Europe’s debt crisis, traders in the U.S. were bracing for a crucial test of the world’s No. 1 economy, so-called Black Friday, the day that kicks off the holiday shopping season. How well retailers do will have consequences for the still-fragile U.S. economic recovery, as well as for the global economy. Adding to the negative sentiment was Moody’s downgrading of Hungary’s credit rating to junk status late Thursday. Hungary, which last week asked the International Monetary Fund and the European Union for possible financial help, is feeling the fallout from the debt crisis in the 17-country eurozone, even though it does not use the euro. Its economy has not grown as much as hoped and its debt burden remains relatively high.

Asian markets mostly fell on Friday as a meeting between the eurozone’s three biggest economies highlighted their differences on finding a solution to the region’s debt crisis. Tokyo was flat, edging down 5.17 points to end at 8,160.01, while Sydney shed 1.48 percent, or 59.90 points, to end at 3,984.3 and Seoul closed 1.04 percent, or 18.66 points, lower at 1,776.40.