S&P500 Index suffers its biggest fall the year: Morning market insights

The New York Stock Exchange fell overnight, with the S&P500 Index suffering its biggest fall this year after yields on Spanish and Italian government bonds rose again.

The bonds are edging closer towards 6%, where government debt is regarded as close to unsustainable.

Federal Reserve chairman Ben Bernanke says the US economy hasn’t fully recovered after disappointing jobs figures on Friday.

“Friday’s disappointing report has eroded investor confidence about America’s self-sustaining ability to overcome headwinds from Europe,” Mohamed El-Erian, CEO of Pacific Investment Management told Bloomberg.

Spanish bonds slumped after the Spanish Economy Minister Luis de Guindos declined to rule out a rescue, and Bank of Spain governor Miguel Angel Fernandez Ordonez said the nation’s lenders could need more capital if the economy weakened more than expected.

Adding more downside momentum, China reported that its imports grew by less than expected in March, adding to concerns the world’s second biggest economy is slowing down.

The S&P500 Index fell 1.71% to 1358.59 overnight.

The Dow Jones Industrial Average was down 1.65%, or 213.66 points, to 12715.90.

The NASDAQ Index lost 1.83% to 2991.22.

West Texas Intermediate (WTI) oil rose 0.09% to $US101.11 a barrel, while gold was up 1.02% to be trading at $US1660.70 an ounce.

The Australian dollar was down overnight, buying $US1.0255 at 8.25am AEST as concerns about the global economy grew. The AUD is seen as a high-yielding but risky currency. When there are concerns about the global economy, investors  tend to sell it.

Europe

European share markets suffered big falls overnight on concerns over Spain. Spanish 10–year bond yields reached 5.95% overnight.

Spanish Prime Minister Mariano Rajoy unexpectedly announced another 10 billion euros in budget cuts – less than two weeks after unveiling the most austere budget in more than three decades. Rajoy is targeting public services such as health and education for the first time in a bid to convince potential bond investors he can bring the nation’s finances under control.

Alfredo Saenz, CEO of Spain and Europe’s biggest bank, Banco Santander, called for “stronger European quantitative easing” in Madrid overnight.

“There are growing fears that the Spanish economy is caught in a pernicious circle,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, told Bloomberg. “The weakness of government finances, the fragility of banks and worries about the scale of the recession all feed on each other.”

The London FTSE 100 closed down 2.24% to 5595.55. The German DAX was down 2.49%  to 6606.43. The European Stoxx50 index was down 2.97% to 2321.53.

In Frankfurt banks led the sell-off, with Commerzbank (CBK: GR) losing 5.46% to close at 1.695 euros. Deutsche Bank (DBK:GR) lost 4.77% to 33.270 euros.