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New York - Global stocks and the euro fell on Tuesday as yields on Italian and Spanish bonds climbed back to unsustainable levels, touching off investor fears that eurozone debt contagion could spread to top-rated nations.
Investors rushed to safe haven debt issued by the United States and Germany, driving the premium paid by 10-year French bonds over comparable German Bunds to euro-era highs. Austrian, Belgian and Dutch debt were also hit.
Better-than-expected US retail sales data for October, however, suggested the world’s largest economy started the fourth quarter with some vigour, offering temporary support to US stocks.
“The danger is - and the markets are keenly aware of this - that this crisis, like most, (can) turn on a dime and can blow up very, very quickly,” said Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, New York.
“As long as the (European Central Bank) continues to be unwilling to become the lender of last resort and really pull out the bazooka, you are going to continue to see these scares,” said Pursche.
Many analysts believe the only option to stem the contagion is for the ECB to buy large amounts of bonds without drying up the liquidity from the purchases, similar to the quantitative easing undertaken by US and British central banks.
The ECB has continued its bond purchases, but repeatedly said it was up to individual governments to put their fiscal houses in order.
“Everything is under pressure now, the market is clearly in the mood to force the ECB to take more action,” one trader said.
Global stocks fell, as measured by the benchmark MSCI All-Country World index, which traded 0.6% lower. European shares were off 0.3%.
At mid-morning, the Dow Jones industrial average was down 3.48 points, or 0.03%, at 12 075.50. The Standard & Poor’s 500 Index dipped 0.33 points, or 0.03%, at 1 252.11. The Nasdaq Composite Index was up 0.07 points, or 0.00%, at 2 657.29.
US stocks were briefly boosted after economic data showed US retail sales rose broadly in October, while a gauge of New York state manufacturing showed growth this month for the first time since May.
The euro lost 0.43% against the dollar to $1.3564 as borrowing costs of troubled European countries again reached levels seen as unsustainable.
Italian 10-year yields rose above 7%, while Spanish 10-year yields hit 6.3%.
Yields paid on 10-year US Treasuries, on the other hand, briefly fell below 2% as investors rushed to the perceived safety of US government debt. They last traded at 2.0347% as prices rose 3/32.
US crude oil prices increased $1 to $99.14, supported by US retail data.
