Markets: Another Nail Biter Ahead

Last week was the worst for global markets for the last month or more as Europe's woes again threatened to overwhelm confidence.

The succession of bad news and reports of rising bond yields for Spain, Italy and more worrying, France, crushed any optimism that the eurozone crisis had steadied with the changes of government in Italy and Greece.

Overnight we got a change of government in Spain, but that won't have any impact: at least the defeated Socialist government has been cutting spending and debt and attempting to boost the country's stricken savings banks.

Now markets will wait for the new conservative administration in Spain to show its bona fides in bring down spending and debt.

But will the new government get time to do that, or will markets simply push bond yields higher and force the new administration to act faster than it would have wanted to?

So with tensions still high, it was 'risk' off' so far as investment markets were concerned.

Losses for the week were significant - 2% and more while gold was pumelled, and even oil dropped for the first time in six weeks.

Australian shares are expected to open flat this morning after the share price futures index closed 1 point higher to 4,182 early Saturday.

That was after local stocks finished last week with big losses, the worst for eight weeks.

Europe's debt woes sapped investor confidence here and offshore, despite the slightly steadier close on Friday in some regions.

The ASX200 benchmark share index fell 81.2 points, or 1.9% on Friday, to 4177, while the All Ordinaries index dropped 77.4 points, or 1.8%, to 4246.7.

For the week, the ASX200 lost 2.8%.

The market's value fell $23 billion on Friday, which accounted for most of the week's loss of $33 billion.

Considering that the Australian market was the best performed in Asia the week before with a gain of 0.35%, last week's loss of confidence was a significant reversal.

There were no local factors driving the sell-off, just the steady loss of confidence and emerging freeze emanating from the troubled eurozone.

The Aussie dollar ended just over parity with the US currency at $US1.008 after dipping well under the parity level on Wednesday and Thursday.

That also saw the Aussie lost 1.5c over the week, but the move back over parity later Friday was a sign of 'safe haven' buying by worried investors.

Australian 10 year bond yields will be worth watching this week because they could dip under 4% for the first time in several years, thanks to the continued strong buying by local and offshore investors.

Yields hit a low of $4.015 last Wednesday in local money markets; the lowest yields have been for years.

The previous low was 4.02% on December 18, 2008, but unlike then, local liquidity and confidence levels are much higher and banks are not keeping billions of dollars on deposit with the central bank.

In the rest of Asia, Hong Kong's Hang Seng Index dropped 1.7% on Friday, while the Shanghai Composite Index fell 1.9%. Japan's Nikkei Stock Average lost 1.2%, Korea's Kopsi fell 2% and Australia's S&P/ASX 200 index shed 1.9%.

For the week the MSCI Asia Pacific Index dropped 2.7%, pushing its fall in the last three weeks to 8.4%.

Fears from Europe added to continuing concerns about Chinese property prices and banks, and worries about the economy will be to the forefront this week with the first early indicator of manufacturing activity due for release.

Hong Kong's Hang Seng Index dropped 3.4% last week, while China's Shanghai Composite Index fell 2.6%. Japan's fell 1.6% and India's Sensitive Index ended off 2.1%.

In Europe, the Stoxx 600 Index dropped 3.7% this week to 232.17, its lowest close in six weeks, as those Italian, Spanish and French bond yields jumped to worrying highs.

National benchmark indexes fell in all but two of the 18 western-European markets. France's CAC 40 slid 4.8%, London's FTSE 100 dropped 3.3% and Germany's DAX lost 4.2%.

Brokers pointed out that the next concern is Greece which has yet to receive the 8 billion euro payout under its current bailout package.

There is in fact a growing chance it may not be paid if the leader of the conservative party doesn't sign an agreement to accept the terms of the new bailout arrangement.

Weekend reports said that Antonis Samaras, leader of Greece's main conservative party, New Democracy, has refused to sign, claiming there is no need for him to offer a written declaration because he can be trusted.

His comments came after a call from lenders to Greece for written commitments to offset their fears that Greek politicians may backpedal or ignore their commitment to austerity during the period before the country's February elections.

The IMF, EU and European Central Bank have every right to be suspicious because Mr Samaras has opposed the austerity measures and bailout deals in the past and his party was the government when much of the budget fudging and lying over spending and debts occurred.

In the US, stocks ended mixed on Saturday morning, despite more goodish economic news on the day and during the week.

Concerns about the eurozone continued to gnaw at investor confidence.

The Dow added 25.43 points, or 0.2%, to end the Friday session (which saw very light trading) at 11,796.16.

Despite the gain, the Dow posted weekly losses of 2.9%.

The S&P 500 eased half a point on Friday to end at 1,215.65, for a weekly loss of 3.8%.

The S&P had its biggest weekly loss for eight weeks and the close was the lowest since October 30.

The Nasdaq Composite ended 15.49 points lower, or 0.6%, at 2,572.50.

Over the week, the Nasdaq declined 4%.