EUROPEAN BANKS are facing increasing strains on their balance sheets because of the dramatic jump in the cost to borrow dollars, essential for some institutions that need to repay loans in the U.S. currency. The cost for European banks to swap Euros into dollars has jumped fivefold since June, hitting the highest levels since 2008, and raising the risk of insolvency in the region’s financial sector.
POLITICIANS must abandon their inhibitions and prepare for the default of Greece, according to a senior member of Germany’s coalition government. “To stabilize the Euro, there can no longer be any taboos,” said Philipp Roseler, head of the Free Democrats. Roseler added, “That includes, if necessary, and orderly bankruptcy of Greece.” He was echoed by other German politicians who are openly discussing a bankruptcy of Greece and its exit from the single currency.
ASIAN stocks fell as bond risk surged to a two-year high and the Euro sank to its lowest level since 2001 against the yen. Commodities dropped for a third day. The MSCI Asia Pacific index lost 2.2% in Tokyo just after lunch and the S&P 500 index futures slid 1%. Treasury 10 year yields were three basis points away from the record low of 1.89% and the S&P’s GSCI Index of raw materials retreated 1.2%, paced by oil and copper.
EUROPEAN shares are set to slip at the opening bell this morning, tracking a slump in the overseas markets, on growing concerns Greece might default and as France and Germany were struggling to present a united front to shore up confidence in the euro zone. Banking stocks may come under renewed pressure, with France’s top banks bracing themselves for a likely credit rating downgrade from Moody’s, sources close to the situation said on Saturday.
THE EURO dropped to its lowest level since 2001 against the yen and slid versus the dollar as speculation German Chancellor Angela Merkel is preparing for a Greek default curbed demand for the shared currency. The Dollar Index, which tracks the greenback against six U.S. trading partners, climbed for a third day to its strongest level in more than six months.
OIL slid for the third day in New York as investors bet Europe’s debt crisis will harm economic growth, tempering demand for raw materials. Gulf of Mexico producers resumed production as the threat of storms eased. Crude for October delivery fell as much as $1.33 to $85.91 a barrel on the New York Mercantile Exchange and Brent oil for October decreased 86 cents.
FUNDS increased bullish bets on raw materials for a fourth straight week, the longest series of gains this year, on speculation that economic stimulus programs will lift the demand for metals, grains and energy. In the week ended September the 6th, speculators raised their net-long positions in 18 commodities by 0.2% to 1.28 million futures and options contracts. That’s the highest level since June the 14th.