While you were sleeping: All bets are off

Tuesday 30th November 2010

So much for stabilising the euro by bailing out Ireland. Investors wasted little time in knocking the single currency lower and negating all the positive sentiment from the speed at which the bailout package was agreed as well as the optimism from the start of the US holiday shopping season.

"If Europe is having these systemic problems, it brings the question of whether our economic recovery is put on hold," Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore, said.

The euro dropped 1.1% against the greenback to US$1.3098, a two-month low, reflecting concerns that EU officials haven't yet moved fast enough to get ahead of the crisis.

While Ireland may have been pulled from the brink, the focus has shifted to Portugal and Spain. Credit default swap costs on Portugal and Spain both hit record highs on concern they might be next to suffer a credit crisis.

The spread between Spanish 10-year bonds and the German 10-year Bund widened to 276 basis points, 22 basis points up on the day.

Even equities' investors found little to be optimistic about.

The CBOE Volatility index, Wall Street's so-called fear gauge, hit its highest level since early October.

In morning trading, the Dow Jones Industrial Average fell 1.04%, the Standard & Poor's 500 Index dropped 0.87% and the Nasdaq Composite declined 1.10%.

Bucking the trend, online retailer Amazon rose 0.8% after hitting a record high on expectations of solid sales on Cyber Monday, a day of big discounts for online shoppers.

About 212 million shoppers hit stores in the US over the long Thanksgiving holiday weekend, 8.7% more than in 2009, according to a private survey.

Oil was steady, trading at US$83.76 a barrel at 1502 GMT. That is below the two-year high of US$88.63 reached earlier in November.

ICE Brent for January rose 12 cents to US$85.70.

"The southern European sovereign debt crisis would have to take a severe turn for the worse to derail positive commodity price trends that are finding strong support from improving fundamentals and positive market sentiment toward growth assets," Barclays Capital analysts said in a report.

Gold was also steady. Spot gold was bid at US$1,361.05 an ounce at 1601 GMT against US$1,361.73 late in New York on Friday.

BusinessDesk.co.nz

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