European and US markets ended in negative territory

European and US markets ended in negative territory, falling over 1% while the slide was somewhat softer in American bourses. A plethora of unexpectedly negative data this week has turned investors more prudent as fears intensify over a potential recession.

Mr. Market is now especially sensible to monitor the latest progress in Europe, where business activity appears to have grounded to a halt, and also in China, where the headlines making the case for a 'hard landing' are on the rise.

As noted by Westpac strategist Richard Franulovic: “There have been some notable misses in a plethora of data across the globe this week, from HSBC China PMI; Eurozone PMIs; Canadian retail sales; Q4 NZ GDP; UK Feb retail sales; the US March NAHB homebuilder sentiment index and finally Feb US housing starts and US existing home sales.”

In the bond market, Spain is returning to center of attention again, due to the recent surge of its borrowing costs. On Thursday the country's 10-year bond yield rose by 7.2 basis points to 5.49%, indicating that contagion risk is real and that Spain might be needing a bailout agreement such as the one Greece had made. Also Italy saw an increase in its borrowing costs as the yield on its 10-year bonds hit 5.08%.

According to Kathy Lien, Director of Currency Research for GFT: “The Eurozone is suffering from weaker domestic and external demand. The sharp decline in the PMI reports flashes signs of a technical recession in the Eurozone.(...) The rise in Italian and Spanish 10 year bond yields raises fresh concerns about the funding capacity of the Eurozone’s #3 and #4 economies. The EUR/USD will have a very tough time recovering if European bond yields continue to rise.”

Making the alarm bells sound even louder was Dutch Finance Minister Jan Kees de Jager, who said on Thursday he did not discard the possibility of further debt restructuring by European peripheral countries.

As reported by Reuters: “"Greece is an exceptional case. Does that mean there will never again be a restructuring of debt? No. This is even written in the preamble of the ESM treaty, that this is a form of IMF practice," De Jager said in parliament, adding that Portugal was a different case to Greece due to the lesser debt burden on its shoulders.