Markets are continuing to sell off today after yesterday’s rout; a result of a combination of profit-taking following the rally set on by the Fed QE announcement and ongoing uncertainty from Europe.
German Economic Sentiment on the Rise
European equities are down 0.75% today, even as German ZEW economic sentiment rose for the first time in five months. Sentiment rose from -25.5 to -18.2, narrowly beating expectations of -19.2. The Euro has fallen one-cent against the US Dollar and 50 basis points against the Loonie overnight.
Tensions are heating up in Asia; rumors overnight have China preparing economic sanctions against Japan while Chinese surveillance boats enter Japanese territory. Protests are escalating on the 81st anniversary of the date Tokyo occupied Manchuria, setting control of the islands into debate.
European banks are failing at cutting the more than $1.2 trillion in assets that was pledged last year to help them ride out the ongoing crisis. Banks actually increased assets by nearly 10% in the past 12-months following the more than €1 trillion in short-term loans the ECB has made to bolster lending. As central banks and financial institutions lever up, the future challenge to repay all of this debt without making any structural changes today will pose a very serious risk.
The TSX has fallen 0.5% since the opening bell, while the Dow is down 0.25%. Risk aversion is hitting commodities as well: Crude Oil is down 0.75% and has fallen nearly $5 since yesterday’s high while Gold is 0.25% weaker ($1,765/oz.). The Canadian dollar has fallen another 0.25% against the USD overnight.