Tags: Markets | Swing | Despair | Panic

Analyst: Markets Are Swinging to Despair From Panic

Wednesday, 25 Jul 2012 01:12 PM

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Markets are swinging in two directions these days, not from hopeful to guarded but rather, from panic to despair, as positive news is hitting the wire with less and less frequency, said Peter Toogood, Director of Investment at Old Broad Street Research.

The European debt crisis is getting worse, as borrowing costs soar in Spanish bond markets on fears the country will need a bailout.

China's once red-hot growth rates are cooling while in the U.S, high unemployment rates and softening retail sales and confidence numbers indicate the world's largest economy is facing something more sinister than a soft patch.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

With such uncertainty building, expect volatile market swings fueled by fear-based trades to continue.

“The market sits somewhere between panic and despair. People are worried, you’ve thrown everything you can at it and still there’s a slowdown and that will be the truth in austere times but we need to wake up to it,” Toogood told CNBC.

Europe, meanwhile, must pay down massive debt burdens, which won't happen overnight.

“A giddy mix of slow developed world growth and a meaningful cyclical slowdown in the emerging markets makes growth in the second half and therefore earnings vulnerable. The most visible sign of stress is the European crisis and this rumbles on,” Toogood said.

Talk that Greece may default on its debts and exit the eurozone has gone on for some time now, with many hoping for policymakers to design an orderly exit for the country while keeping the larger Spain and Italy in.

That might no longer be possible, some analysts have pointed out.

Yields on the 10-year Spanish bonds have soared beyond 7.60 percent, well above a 7 percent level branded as out of hand by the markets and suggesting the country needs a massive financial lifeline.

Eurozone nations have created a financial firewall, known as the European Stability Mechanism, to prop up struggling economies, though a court in Germany is mulling a case to decide if bailing out other nations violates national law.

That court isn't expected to decide anytime soon, which hampers policymakers' room to act.

As a result, a messy Greek exit from the Eurozone is becoming increasingly likely, which could prompt the larger Spain to default and ditch the currency as well.

"Although it is frequently argued that a Greek exit is now manageable, no one knows what the consequences of such a development would be, especially now that Spain looks more likely than ever to have to apply for a full program and Europe's weak firewalls seem likely to be tested," Dimitris Drakopoulos and Lefteris Farmakis, financial analysts at Nomura Securities, wrote in a research note, according to CNNMoney.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown


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