Danske Daily: US, Asian Stock Markets Dropped

US and Asian stock markets have dropped on the back of increased political worries in Spain and Italy. European shares saw major corrections in yesterday's trade.

The euro has been hit by the renewed political worries, which have also pushed down US bond yields, while Spanish and Italian yields have spiked.

The Reserve Bank of Australia this morning kept its key policy rate unchanged at 3% but signalled that it might cut rates if the economy weakens. The Aussie dollar weakened on the back of the decision.

Markets Overnight
Yesterday we saw the biggest drop in the US stock markets so far this year on worries about the situation in the eurozone. The major US indices fell around 1% on concerns about the situation in Spain in particular. The drop in the US stock markets came after major decreases in European trading. The French CAC40 index fell as much as 3% yesterday.

In Spain corruption allegations against Prime Minister Mariano Rajoy and his centre-right Popular Party have surfaced. The Prime Minister has denied the allegations but it has certainly been enough to unnerve investors. That said, the concerns over the political situation in Spain come at a time where technical indicators are pointing to a correction in risky assets, which might help to explain the setback in the global stock markets.

The jitters in the US stocks markets spread to the Asian equity markets, which are broadly lower this morning. Nikkei, for example, is nearly down 2%.

The re-emergence of eurozone worries has also dented the rally in the euro and over the past 24 hours the euro has lost ground against the other major FX crosses.

The increase in risk aversion has pushed US Treasury yields lower and it is notable that Friday’s fairly strong ISM data and labour market report have not really helped push yields higher. Yields were also pushed down by weaker-than-expected US factory orders in December. In the eurozone bond yields in Italy and Spain have increased on the back of the renewed worries. Investors also seem to be concerned about the French economic situation and French yields have been inching slightly higher as well.

The Reserve Bank of Australia this morning kept its key policy rate unchanged at 3% but the Aussie dollar has weakened in this morning’s trade after the RBA signalled that it could cut interest rates to respond to weakening demand.

To Read the Entire Report Please Click on the pdf File Below.