President Obama said this morning at his press conference that he would not sign a temporary National Debt limit hike to provide more time for Congress to pass a broader package of tax reform and spending cuts. He said that kicking the can down the road would make a final agreement more difficult as the 2012 election approaches.
When asked whether his administration was formulating contingency plans in the event a compromise cannot be reached prior the August 2nd deadline, the president responded that a deal would be achieved.
The stock market was not mollified by the comments, with the Dow off roughly 150 points before and after the nearly 50-minute press conference ahead of the New York lunch hour. Treasury yields initially also were unmoved from their prior position.
In Europe, the German stock market plunged over 200 points (nearly 3%) toward the end of Monday’s trading on concerns that Italy’s accelerating debt problems significantly could harm the German economy.
Italy has the third-largest economy in the EuroZone behind Germany and France. The cost of insuring Italy’s debt hit a record high today as its 10-Year bond yield climbed to nearly 5.7%, the highest mark in a decade. Traders are watching the 7% level which is widely viewed as the “tipping point” into calamity.
Italy’s largest bank saw its share price fall nearly 4% on Monday, adding to the 20% slide last week. As usual, speculators including hedge funds were blamed for the carnage. Thus, Italy’s market regulator instituted new emergency rules to curtail short selling. Nervous investors are awaiting the results of the most
recent Italian bank “stress tests” which are due on Friday.
Before heading into another meeting on the U.S. budget impasse, House Speaker John Boehner said he would be in favor of tax reform but not take hikes. The Dow ended with a loss of 151 points to 12,505 ahead of the start of the quarterly earnings reporting season.
US10Yr was up 30/32nds to 2.91% after having slid in yield throughout the day and the long bond was up 46/32nds to 4.20%. Crude was down over a dollar to $95.04 while gold remained up $12 to $1555.
