It looks as if we could be headed for another summertime crisis in the eurozone, as Portugal’s government crumbles and bond yields spike. Combine this with a political crisis in Egypt and yet more bad news from China and you have the recipe for a very choppy day on the markets. For European markets, things could only get worse tomorrow as the US takes the day off for Independence Day.
It seems all those worries about Greece were overdone, as the focus of attention swifts with rapidity from Athens to Lisbon. Portugal had, until now, succeeded in keeping out of the limelight, quietly getting on with tough reforms while everyone fretted about the bigger worries of Spain and Italy. Markets don’t like to return to problems they thought had been solved, but the slow-motion disintegration of the Portuguese coalition and the alarming spike in bond yields shows that the medicine of austerity is still a very tough pill to swallow. With China posting weaker numbers this morning both the banking and mining sectors are enduring a small meltdown, with Barclays leading the way, down more than 3%.
The prelude to non-farms, the ADP report, comes out today, and many will be praying that it echoes the weak employment number from Monday’s ISM data. Almost perversely, a strong reading could be the last thing the market needs, and could mean that we are in for a volatile pre-holiday session on Wall Street, with the 1600 level on the S&P 500 potentially under threat once again. Ahead of the open, we expect the Dow to start 100 points lower, around 14,830.