The pain is Spain drives down the grains. Not to mention oil, gold and silver. A Spanish downgrade and a vote of no confidence by the Belgium National Bank put the market into deflationary mode as the euro sank to a two-year low sending oil to perhaps its biggest monthly loss in almost three years. Eagan-Jones downgraded Spain's debt to bb- from b and left the country on a negative outlook. This comes right after the National Bank of Belgium reduced its exposure to sovereign debt from the euro-zone periphery countries like Spain, Greece, Italy, Portugal and Ireland by not renewing expiring securities, and instead using about 1.1 billion dollars to buy back its own government paper. So if Belgium wants no part of the PIIGS debt, why then would anyone else?

The oil market was trying to be optimistic about Europe, it really was. They tried to find solace in the fact that the Greek austerity party is leading the polls in Greece and that European stock markets closed higher. Yet at the end of the day, it seems that confidence was shattered. They also erased an Iranian risk premium as the talks with Iran seem doomed to fail. Even word of a soft war against Iran computer infrastructure with a super virus seemed to suggest that there are ongoing plans to thwart Iran's nuclear ambitions. Oil has come into long term support and tried to hold its gains but it became an impossible effort. German bonds started to soar and yields hit record lows as Spain retail sales tanked, raising the odds of a deepening recession.

It also did not help that China downplayed the speculation surrounding a massive quantitative easing. Reuter's News reported that, China does not need massive fiscal stimulus to stabilize growth and calm investors fretting that the global economy may slip back into a similar crisis as 2008-2009, top policy advisers said. Even though China's economic growth is expected to ease this year to its weakest pace in 13 years, aggressive spending now could do longer-term harm, they said. That has dampened hopes that the stimulus will be of the shock and awe scale of 2008. Of course that does not mean that it will not be big and China wants to move the markets on its own terms when the measures will be announced.

My thanks to all of my friends at PFGBEST! And the best to all of you!

_________________________
Phil Flynn
Research Division
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