Rising rates hinder equity gains in both Asia and Europe

Rising inflation concerns and the prospect for higher central bank interest rates sent most Asian markets sharply lower. The Shanghai index fell 1.7%, the Indian Sensex fell 2.4% to an 8 week low as their 10 yr yield rose to the highest since Oct ’08, Indonesia’s market fell 4.2% to a 15 week low, Thailand fell 2.1% and the Philippines index was lower by 2.1%. Reports over the weekend that Germany and France are asking Portugal to take bailout money was denied but Portuguese CDS is rising to a record high as they are also in Ireland and Belgium and Italy’s is just 10 bps from a record. ECB buying of Irish and Portuguese debt helped to reverse early morning losses in them. Portugal, Italy and Spain this week come to market with key bond sales and Portugal specifically admitted they can’t handle 7% funding costs for long (7.04% yield today) and their stock market is falling to the lowest since Aug. The Euro is falling to a 4 month low vs the US$.

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