With another day of sharply rising bond yields in Italy, Spain, Austria, Belgium and France after Spain sold 12 and 18 month debt at yields about 140 bps above similar maturities sold one month ago, European eyes still remain largely fixed on Italy. EU Pres Rompuy said “the problems of one country have become the problems of the euro zone as a whole” and the IMF, ECB and EC are watching and will be measuring fiscal austerity in Italy “very closely”. See Tumblr.
Germany’s ZEW investor confidence 6 months out in their economy fell to the lowest since Oct ’08 (almost 3 pts weaker than expected) and the current outlook dropped to the weakest since July ’10 (2 pts better than estimated). Q3 GDP in the euro zone rose .2% m/o/m and thus less than 1% annualized both in line with forecasts as the German economy rose 2% annualized while the Netherlands saw an outright contraction. The cost of swapping euros for US$’s as measured by the euro basis swap is rising to the most since Dec ’08. US$ 3 month LIBOR rose again and hasn’t fallen since late July. In US markets, three of the last six trading days have been the slowest of the year and its clear that European debt issues are paralyzing investing decisions, a rational response it seems as the unprecedented nature of what is ailing us can’t be modeled.