Sunday, May 20, 2012

U.S. Markets Tumble on Greece Euro Zone Exit Concerns

The S&P 500 fell for a 6th consecutive day on Friday on euro zone worries, and posted its worst week since November. On Friday, the S&P 500 fell 9.64 points or 0.74% to 1,295.22. The Dow lost 73.11 points or 0.59% to 12,369.38. For the week, the S&P 500 tumbled 4.3%, while the Dow fell 3.5%. The S&P 500 has fallen 7.3% so far in May.

Facebook Records Lackluster Performance After IPO

After its IPO on Friday, shares of Facebook initially rose 10% in early trading. However, it closed just 0.6% above its issue price of $38, at $38.23. The shares almost fell below the $38 level, but were supported by its underwriters.

16 Spanish Banks Downgraded as Euro Zone Concerns Spread

On Friday, Moody's downgraded 16 Spanish banks by 1 to 3 notches, as concerns about Greece spread to other PIIGS nations. Meanwhile, with the increasing threat of Greece leaving the euro zone, S&P downgraded Greece on Friday, from B- to CCC.

Spanish Debt Yields Hit Record Highs

On Thursday, Spain auctioned $2.5 billion of 3- and 4-year government bonds. The yield on the 4-year bonds was 5.106%, much higher than the 3.374% at the last auction. As a result, the yield on 10-year Spanish bonds rose to 6.38%, and its spread versus German debt rose to 500 basis points.

Greeks Rush To Withdraw Deposits from Banks

With the increasing threat of Greece leaving the euro zone, Greeks have been rushing to withdraw money from banks. On Monday, Greeks withdrew $700 million euros from Greek banks. The situation was similar on Tuesday. This caused the euro to fall to US$1.2688 on Wednesday, and the yield on Spanish 10-year debt to hit 6.51%.

Looking Ahead to Next Week

With the severity of the euro zone crisis increasing, markets will likely continue to fall until the situation in Greece is resolved, either with a temporary solution by the ECB/EU/IMF or through exiting the euro zone. G8 leaders have been meeting this weekend, and investors will look to see if there are any concrete measures announced next week. Meaningful action by the G8 would provide markets with a boost. Investors will also be looking at the German, French and euro zone PMIs to gauge the health of the euro zone economy. In addition, Germany's Ifo for business sentiment will shed light on the strength of Europe's leading economy.

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