The news that a recovery is starting in the United States economy has caused global markets to plunge. Bond yields rose in Germany, the United States and in Spain they reached 4.7% while the risk premium hit 319 basis points. This behavior responds to fears that the liquidity central banks have been pumping into the economy will cease. Bernanke announced yesterday that he is going to cut off quantitative easing in mid-2014.
Bernake does not need to stop its stimulus plans too soon, but he does need to make sure that nobody gets tipsy on all the stimulus spending. In the United States markets are slumping off their historic highs. And it looks like the bond market bubble is about to burst -- which is a good thing.
The selloff of fixed income is happening because investors want to increase their liquidty in order to start buying bonds as soon as their yields increase. Falling equities markets are also responding to weak manufacturing data from China. The situation there grows more complex as doubts about its financial system arise.
In Spain, the Ibex suffered losses but kept its support. Luis de Guindos and Luis María Linde, the Governor of the Bank of Spain, both announced that GDP will grow in the third quarter. This forward development of the Spanish economy could meet a serious setback if the yield on the country's national debt rises and thus increases financing costs. This could put an end to a possible recovery, putting the pressure on Europe's political and economic policies designed to spur economic growth, fight unemployment and galvanize credit for small- and medium-sized businesses.
