Spain woes weaken US sectors: Morning market insights

The New York Stock Exchange fell overnight, with investors worried about the weak demand for the first Spanish bond auction since the new Spanish government imposed deep cuts, trying to reign in growing debt worries.

The Spanish bond auction “serves as a reminder to the market that Europe is still with us,” Mark Freeman, chief investment officer at Westwood Holdings Group in Dallas, Texas told Bloomberg. His firm oversees about $13 billion. “We still have a long way to go before things get worked out,” Freeman said. “The market has now moved significantly higher. But guess what, expectations are now much higher. What ultimately it’s going to take is much stronger corporate profits.”

The S&P500 Index was down 1.02% overnight or 14.42 points to 1398.96, which is the second biggest one-day decline in 2012.

The Dow Jones Industrial Average was also down 0.95% or 124.80 points to 13074.80.

The NASDAQ Index fell 1.46% or 45.48 points to 3068.09.

Bank of America (BAC: US) fell 3.06% to $US9.20 as financial stocks slid.

JPMorgan Chase & Co (JPM: US) fell 2.22% to $44.41 as it gave chairman and CEO Jamie Dimon $23 million in pay and bonuses for 2011. The United States’ largest and most profitable bank capped its second straight year of record profits in 2011 with $19 billion ($AU18.62 billion) in net income.

West Texas Intermediate (WTI) oil fell 2.44% to $US101.47 a barrel overnight.

Gold was down 3.46% to be trading at $US1614.10 an ounce.

The Australian dollar was down slightly overnight, buying $US1.0265 at 7.45am AEST.

Europe

European share markets fell substantially overnight as a Spanish bond auction found weak demand for its debt– at sustainably low interest rates. The tepid demand for Spanish government debt shows investors were not impressed by the budget cuts the Spanish government has made in order to shore up its finances.

The Spanish government sold 2.59 billion euros ($AU3.2 billion) of bonds at an auction overnight, the Bank of Spain said. It auctioned 973 million euros of five-year notes at an average yield of 4.32%. That was less than the maximum target of 3.5 billion euros showing some investors think the risk exceeds the 4.32% interest rate. Anything over 5-6% is seen as unsustainable.

“It’s back to reality now, demand for Spanish paper is becoming much more price sensitive,” Peter Chatwell, a London-based fixed-income strategist at Credit Agricole Investment Bank told Bloomberg.

Spanish Prime Minister Mariano Rajoy budget austerity is much less painful than a bailout would be.

“Spain is facing an economic situation of extreme difficulty, I repeat, of extreme difficulty, and anyone who doesn’t understand that is fooling themselves,” Rajoy told his People’s Party last night in Malaga.

Rajoy raised the threat of an international bailout for the second time this week as he sought to defend the harsh austerity measures in at least thirty years. While “no one likes” the budget cuts, he said “the alternative is infinitely worse.”

The London FTSE 100 fell 2.30% or 134.57 points to 5703.77.

The German DAX was down 2.84% or 198.22 points to 6784.06.

The European Stoxx50 index was also down 2.46% or 60.52 points to 2398.46.

In Frankfurt, German banks lead the falls with Commerzbank (CBK:GR) fell 3.35% to 1.789 euros after falling yesterday and Deutsche Bank (DBK:GR) fell 3.32 % to 35.275 euros.