As reader sharkfinn pointed out earlier in the reader comments, the gold price has dropped around 1% today. The price of an ounce of gold hit a low of $ 1,525 this morning (which means it has fallen nearly 20% since early September).
It appears that gold is a major casualty from the ‘dash for dollars’. Gold is often billed as a ‘ultimate safe-haven’, but in times of real trouble, many traders opt to liquidate the billion reserves in favour of the US dollar.
This is alarming — Hungary just abandoned a sale of three-year government debt, and had to accept yields of more then 9% on longer-dated bonds.
The Hungarian debt auction office abandoned the three-year debt auction, saying that the offers received were unacceptable.
It did sell 10 billion forints (£27m) of five-year bonds at an average yield of 9.63% – which is deep, deep, deep into unsustainable territory. It also sold some 10-year bonds, at a yield of 9.7%.
The IMF is refusing to lend to Hungary unless prime minister Viktor Orban agrees to discuss his controversial ‘reforms’. Photograph: Karoly Arvai / Reuters/REUTERS
The situation in Hungary was already pretty serious – its government has requested “precautionary” help from the International Monetary Fund and the European Union, but is continuing controversial reforms of its Central Bank (which the bank’s own governor has described as a takeover). There’s a good explanation of the plans here.
Yesterday, the IMF warned that it will not lend more money to Hungary unless it agrees to discuss the central bank reforms.
Hungary needs to roll over £3.8bn of debt in 2012 (or 1.4 trillion forints), so today’s auction results will only add to the pressure on the country.
Conveniently, Italian prime minister Mario Monti is holding an end-of-year press conference today, so we’ll be watching for his views on today’s bond sale (and the wider eurozone crisis)
City analysts are describing the results of the Italian debt auction as average, bordering on disappointing.
David Schnautz of Commerzbank said that the sale showed that Italy remains under “tremendous” pressure. He was also concerned that the sale didn’t get closer to the €8.5bn maximum target, saying this was “not a good sign”.
Alessandro Mercuri of Lloyds Bank said the auction was somewhat disappointing compared to yesterday’s sale of shorter-term debt.
Peter Chatwell of Credit Agricole wasn’t too impressed by either today’s sale, or yesterday’s one (in which Italy sold €9bn of six-month bills at a yield of 3.25%), telling Reuters that:
These have been rather average auctions.
Alessandro Giansanti of ING was encouraged, though, that Italy managed to sell nearly €7.1 of debt on December 29, when many traders are still on holiday.
The Italian bond auction results are in. And it’s a mixed picture, with borrowing costs down – but less debt sold then hoped.
Italy sold €2.5bn of 10-year bonds (maturing in March 2022) at an average yield of 6.979%. So, very close to the 7% mark where borrowing costs are seen as unsustainable.
This part of the auction was slightly oversubscribed — with a bid-to-cover ratio of 1.357% (so Italy could theoretically have sold almost €3.4 of debt).
Italy also sold €1.17bn of nine-year bonds (maturing in September 2021), at a yield of 6.7%
….and also found buyers for €2.5bn of three-year bonds, at an average yield of 5.62%. Smaller amounts of other bonds were also sold.
At first glance, the results are slightly better than feared (the yields on the three and 10-year bonds are lower than the record highs recorded last month).
But, Italy only sold a total of €7.017bn of debt, out of a maximum target of €8.5bn. That’s worrying, when the country needs to auction around €440bn of debt in 2012.
And a yield of almost 7% is still unsustainable over a long period.
It appears that UK bond yields hit a new record low this morning, as investors rushed to buy British debt.
The interest rate on UK 10-year bonds in the secondary market hit a low of 1.962%, and is still bobbing below the 2% mark (data from the Reuters terminal).
It’s not all good news for the UK economy, though – the pound just hit as two-and-a-half month low against the US dollar, trading aroundf $ 1.5404.
A slump in orders has sent morale among Italian businesses sliding to its lowest level in two years.
Italy’s monthly business morale index dropped to 92.5 this month (where any number below 100 means a majority of firms are pessimistic about the future). Analysts had expected a higher figure (93.6 was the consensus).
With Italy’s economy sliding towards recession (it shrank 0.2% in the last quarter), this data shows how the country’s firms are struggling badly. The number of orders hit its lowest level since June 2010, and many firms reported higher inventories (a sign the new goods are “sitting on the shelf” rather than being sold).
Seperately, the M3 measure of money supply in the eurozone dropped sharply last month (according to European Central Bank data). That, according to Howard Archer of IHS Global insight, will:
reinforces belief that underlying Eurozone inflationary pressures are easing and that the ECB has ample scope to cut interest rates again in the early months of 2012.
One of Angela Merkel’s economic advisers has warned that a break-up of the eurozone next year cannot be ruled out.
Beatrice Weder di Mauro, a member of the German government’s council of economic advisers, told the Bild newspaper that a euro break-up would be:
…bad for everyone involved – but not completely excluded. For almost two years, the policy has been to try and contain the crisis and to draw firewalls. However, these walls are not rich yet.
Weder di Mauro added that political leaders hace failed to address the scale of the crisis:
Politicans initially underestimated the crisis and did too little. Now they sometimes cannot act as fast as they want. This is a problem, because the markets are nervous and impatient.
Weder di Mauro also warned that a disorderly collapse of the eurozone would be bad news for Germans. As things stand, the German economy is expected to expand by 0.4% this year — but it could shrink by 0.5%, she said, if the financial crisis deepens and there is no growth in world trade.
The deadline for bids in the Italian debt auction close in an hour’s time. The markets are already looking jittery — with the yield (interest rate) on Italy’s 10-year bonds nudging above the crucial 7% mark.
Analysts also sound concerned. Vatsala Datta, a Lloyds strategist, warned Reuters that:
Today there is a risk that the auction doesn’t go so well. That may trigger another risk-off session, and support gilts further.
Gilts (British debt) are holding onto its safe-haven status — the yield on UK 10-year bonds has fallen to 1.99% this morning.
Some breaking news from the foreign exchange markets — the euro has just hit a 10-year low against the yen.
The word in the City is that Japanese retail investors and exporters have been selling the euro this morning, fearing that the European single currency will suffer in 2012. There’s also a realisation that the crisis remains as unsolved as ever.
As Rob Ryan of BNP Paribas in Singapore put it:
Nobody sees anything on the horizon that could be mildly positive for the euro.
The Yen hasn’t been this strong against the euro since 2001. Yuriko Nakao/REUTERS
A strong yen is bad news for Japan’s exporters, of course — we’ve seen the Japanese government intervene several times this year to drive down its value against the dollar. Conversely, a weak euro helps Europe’s manufacturing base.
One euro was trading as low as 100.33yen. Against the dollar, it is trading around $ 1.293, having earlier hit a one-year low of $ 1.2887. Against the pound, one euro is worth 83.76p.
There’s not much cheer in the stock markets this morning. The FTSE 100 is trading just 7 points higher at 5513, which means it’s still down some 385 points this year.
Other European markets are slightly higher, but there’s litte sign of the fabled Santa Rally.
Here’s today’s agenda of key events.
• Italian auction of €8.5bn of long-term debt: Bids close at 10am
• Euro-Zone M3 money supply data for November – 9am GMT
• Italian business confidence for December – 9am GMT
• US weekly jobless data – 1.30pm GMT
Not a vintage schedule – but who know what other excitements we have in store….
Good morning, and welcome to another day of live coverage of Europe’s financial crisis.
Italy will again be in the spotlight. Having successfully sold €9bn of short-term debt yesterday it must now find buyers for up to €8.5bn of long-term bonds. As Reuters neatly explains:
The auction is seen as the first test of banks’ willingness to buy longer-term sovereign debt with the nearly €500bn they borrowed last week from the European Central Bank.
A few gobbets of economic news are expected – including weekly jobless statistics from America, German inflation data, and November’s eurozone M3 money supply.
Elsewhere, investors and analysts are waving goodbye to the turkey drumsticks and glasses of sherry and returning to their desks. City traders predict we could see a small end-of-season rally.
