European markets fell across the board yesterday, the Spanish stock market dropping 1.68% (8.08 points) on the day. This behavior follows uncertainty around early discussions within Germany's Constitutional Court about the legality of the ECB's program to buy an unlimited amount of bonds in order to safeguard the euro's future.
Bundesbank president Jens Weidman is sowing doubts by questioning some of the measure that the Mario Draghi enacted to get through the financial and sovereign debt crises. Another factor contributing to the day's dropoffs is the Bank of Japan, which contrary to investor expectations did not announce any major liquidity measures besides existing measures to quiet the extreme volatility plaguing the Japanese market.
Erratic Japanese markets caused Asian investors to flock to local bonds, which European investors did also later in the day when they began buying Italian, Portuguese and Spanish debt. This explains why markets across Europe fell and the risk premium spiked to 305 basis points.
The evidence around today's performance suggests that instability will stick around until the end of summer when the US Fed is expected to explain in detail how it will handle its current stimulus plan without undermining growth in the US economy, which will in turn affect the future of peripheral European nations.
