Pessimism Return To Dominate Markets Amid Ongoing Debt Woes

Jitters returned once again to rattle up traders and a wave of pessimism cracked the financial markets on Wednesday, after a surge in costs of insuring against default on Europe’s debt crisis and German opposition of using the euro bonds as a shield to battle the region’s debt crisis, together highlighted debt crisis fears and the ongoing battle to halt the regions debt turmoil.

Debt crisis pessimism triggered a selloff wave around financial markets today, while risk appetite was barely witnessed as traders backed off from risky trading and were mostly satisfied with lower-yielding assets. Stocks and commodities fell on Wednesday, the euro dropped heavily to trade below the $1.30 level while the dollar extended it rally.

This morning, the Italian treasury sold 3 billion euros of five-year bonds in an auction that missed that the maximum target with a demand of 1.42 times compared with 1.47 last month, while the yield edged up to 6.47 from 6.29 percent from the prior auction.

Weak demand on the bonds slapped the cost for European banks to borrow in dollar up to a record by 6 bp to 147 bp from 141 bp offered by the euro interbank, the highest in two weeks, adding to signs that the European banks is struggling to contain the debt crisis.

In addition, German Chancellor Angela Merkel opposed once again the usage of European bonds as a tool to stem the Europe’s debt crisis, signaling that there is are “no simple and fast solutions” to sustain fiscal consolidation and the European Stability Mechanism “ will suffer setback”, but reassured that Europe will emerge stronger from the crisis that it entered.

The U.S economy was basically out of the equation today, lacking key fundamentals enough to lure cautious traders, but just with figures from the U.S Department of Labor showed that U.S Import Prices rose 0.7 percent, up from 0.5 percent shed in October and slightly below median estimates 0.1 percent, while November exports prices gained a slender 0.1 percent after a 2.1 percent drop, adding to signs the Federal Reserve confined inflation in November.

The U.S. dollar gained for the third consecutive versus a basket of currencies on Wednesday, since the US dollar Index opened at 80.25 levels to trade around 80.62. The Euro versus the dollar rebound a little from its lowest since January, where the EUR/USD pair trades around 1.3002, compared with the opening level at 1.3018.

The British Pound was nearly changed against the Dollar, where the GBP/USD pair trades around 1.5469, compared with the opening level at 1.5477. The dollar also gained slightly versus the Japanese Yen, where the USD/JPY opened at 77.97 levels and currently trades around 78.03.

Stocks in the United States were lower after opening on Wednesday, as the Dow Jones Industrial Average traded below the 12,000 level with a 1.61 percent drop to about 11589, while the S&P 500 index was down 0.83% to trade around 1215.

European stock indexes closed with sharp losses on Wednesday, where FTSE 100 Index was down by nearly 2.25% to trade settle at 533.6690 and the DAX Index was down by 1.72% to close and settled at 5675.14 5795, while the CAC 40 Index shed 2.25 percent to settle at 2976.17.

After the dollar gained strongly on Wednesday, gold prices dropped heavily to currently trade around $1589 after opening at almost $1629 an ounce, while crude oil prices fell after opening at $99.88 as the OPEC oil producers sealed their first new accord in three years over to increase the its production ceiling Meanwhile, crude oil trades around $96.00 a barrel.