Bears Dominate Equities Trade as Spain Worries Deepen

(eToro Blog) Asian stock markets tumbled on Monday and the Eurozone’s equity markets are set to follow Asia’s lead, opening markedly lower as investors’ concerns grow over Spain’s sovereign debt. Shortly after the opening and following last Friday’s rout, the London FTSE has already lost 74 points, the German DAX is down nearly 80 points and the French CAC-40 has dropped 52 points.

Last Friday, Valencia, one of the largest of Spain’s many regions, requested financial assistance from the national government, and there is a report today that several more regional governments will officially make a similar request within the next several days. It is clear that investors’ concerns of a Spanish default are rapidly being justified and the uncertainty will not easily be assuaged. Wolfgang Schaeuble, the German finance minister, recently said that he was confident that Spain’s economy could recover from the painful austerity measures, but markets essentially dismissed his attempt to reassure them.

Spain’s borrowing costs once again escalated above the 7% yield threshold on Friday, with the 10-year benchmark treasuries rising to 7.317%, a Euro-era high. But short-term debt is also seeing a significant rise, 5-year yields rose to 6.9278 and 2-year yields spiked to 5.86%, which suggests that investors expect an all-out Spanish default and the need for a Greek-styled bailout. As one analyst says, Spain is quickly being shut out of the market, as investors are pricing in something big.

On OpenBook, sentiment among the equity traders is mixed, with bears driving the DAX and bulls taking control of the FTSE and the CAC-40. OpenBook trader dlangest from South Africa closed a short position in the DAX with a 141.89% gain; that was a trade copied from trader Acceria from Germany. Acceria’s portfolio has a majority allocation given over to the indices, broken down to 34.4% on the DAX (3.8% profit over the month), 35.4% on the U.S. DJ30 (near breakeven) and 7.5% on the CAC-40 (9.2% gain over the month) plus smaller allocations in the other equities which are traded on OpenBook.

OpenBook trader Faby27 from France also has a majority holding in indices, with 61% of the portfolio allocated in total. Over the past month, the CAC-40 has had a 32.8% allocation which has provided the trader with a 24.2%gain, while the U.S. DJ30’s 17.9% allocation returned a 9.3% profit. Over the same period, the trader’s overall portfolio has shown a profit of 37.8%.

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