Some volatility has crept back into the markets in the past few days, largely driven by negative news flow out of Spain (the latest country to come under pressure as a result of the European debt crisis). This probably didn’t come as a surprise to most professional investors, but it might have to Europe’s esteemed leaders, one of whom declared just a few days ago that the crisis is “almost over,” while another described it as “ebbing.”
In fact, that does not appear to be the case. In recent weeks, Spain has acknowledged that it is going to have difficulty meeting previously agreed upon deficit cutting targets, and will likely end the year with a higher debt ratio than expected. This revelation led to a disappointing result for Spanish bond auctions this week, which caused their interest rates to jump. In addition, Spanish equities have been suffering from heavy selling.
Despite two years of assurances, summits, bailouts of select countries, etc., Europe clearly remains a significant risk to the outlook. Just as many observers predicted would happen, the crisis appears to be operating under a rolling pattern — simply moving from one country to the next as Europe’s leaders scramble to devise ad hoc solutions. Even with last month’s agreement to significantly boost the supposed financial “firewall” meant to reassure the market that adequate resources are being mobilized, investors are still not convinced.
There are those who believe 2012 is mirroring the past two years, with early stock market strength ultimately giving way to troubling events in Europe. While it’s still too early to make such a determination, there are striking resemblances taking shape.
Copyright: / 123RF Stock Photo