SHANGHAI, Jul. 24 (SMM) -- Due to debt crisis worries, funds poured into haven assets. The dollar index rose to 84.01 overnight, a several-year high. Metals remained weak in Shanghai. The mainstream market sentiment is still slightly bearish for the moment.
After Valencia applied for aid on Friday, Murcia, another debt-ridden region in Spain, said will apply for government aid, while 6 more other regions showed similar attempts. In addition, Spain's July 23rd central bank data showed under the influence of sharp decline in domestic demand and financial market volatility, Spain’s 2Q GDP contracted 0.4% on a quarterly basis, and 1% YoY. The central bank expects the country's economy to contract by 1.5% this year. Spain’s ten-year bond yields touched a record high of more than 7.5% on Monday. According to Markit data, Spain’s five-year credit default swaps reached 630 basis points, a record high.
In addition to Spain, Greece is also in the mire. German Deputy Prime Minister and Economic Minister Philipp Roesler said July 22nd if Greece is unable to perform its austerity commitment, the country cannot get the next bailout loan. He admitted that Greece quitting the euro zone has become a not so terrible thing. Greek Prime Minister Antonis Samaras said on Sunday his nation hopes to relax the 130 billion euro aid provisions to ease impact of austerity policies on its economy. IMF hints it will no longer participate in further Greek aid, and Netherlands, Finland and other countries require participation of IMF to offer aid.
Financial markets were heavily hit. US stock markets continued to shed losses on Monday. The Dow Jones Industrial Average closed down 101.11 points, or 0.79%, at 12,721.46. The Standard & Poor's 500 Index fell 12.14 points, or 0.89%, to 1,350.52. The NASDAQ Composite lost 35.15 points, or 1.2%, to 2,890.15. Italian and Spanish shares also met a heavy blow, with Italian bank shares trading being suspended and the two countries subsequently releasing short selling bans which led to wider losses across European stock markets. Market participants believe that short selling regulation of the European Union may work to the opposite. Major European indices fell overnight, the London FT 30 Index fell 117 points to 5533.87 points. German DAX Index dropped 210 points to 6,419.33 points. Italian FTSE-MIB plummeted 360.86 points to 12,706.36 points.
The International Monetary Fund recently cut global economic growth forecasts for this and next year to 3.5% and 3.9% respectively. Developed economies will see a growth of 1.4% this year, while emerging and developing economies will grow 5.6%. Due to the deepened European economic recession and slowing emerging economies, an OECD slowdown is also shown. Global demand will be generally weak before large stimulus comes out.
The HSBC China Preliminary Manufacturing PMI for July will provide an early sign whether the Chinese economy is bottoming and whether a rebound can be expected for 2H. Mainstream expectations were cautious, however. Worries on the falling or global economies, especially emerging economies are the inherent causes of failed rebound attempts of commodities. Prolonged destocking in China is another reason for weakness in commodities.