Selloff in crude oil stabilizes and recovers to 77.8 in European morning. However, price will inevitably record a loss of around 10 dollar over the week. This will be the deepest decline in 3 months. While fundamentals remain weak in the US and some other advanced economies, this week's slide has been mainly driven by risk aversion caused by Greek sovereign crisis and its contagion to other European countries.
In Greece, legislators voted 172-121 to approve the austerity measures worth 30B euro through 2012. The government will reduce public spending, cut wages and pensions as well as raising consumer taxes so as to reduce budget deficits. Finance Minister George Papaconstantinou the measures will reduce deficit to 8.6% of GDP this year (from 13.6% in 2009) and eventually below 3% of GDP by the end of 2014, a year later than originally planned.
Leaders in the Eurozone meet today to finalize the rescue plan and discuss ways to avoid similar problems to happen in the future. Leaders are going to vote on the bailout plan to Greece worth 110B euro over the next 3 years. 80B euro of the package, at a rate of around 5%, will be shared among 15 member countries in the Eurozone and the rest by the IMF.
Result of the vote will not have much impact on the market as it's widely expected the EU will pass it. What the market believes is that the bailout plan, despite the huge amount, will not help resolve the deficit problem which is rapidly spreading to other Southern European economies.
Stock markets remain under pressure after overnight slump in US markets. In Asia, the MSCI Asian Pacific Index fell -1.7% with Japan's Nikkei 225 Stock Average falling -3.1% as a strong Japanese yen dampens earnings of exporters.
European stocks extend weakness with all benchmark indexes losing more than -1%. In the UK, general election results in the first hung parliament since 1974. The Conservatives will likely win the most seats without gaining overall majority. The pound tumbles to a 1-year low against the dollar and a 1-month low against the euro amid concerns that a weak government may fail to reduce the country's high budget deficit quickly.
Gold remains supported around 1200 after yesterday's rally. SPDR Gold Trust, the world's biggest gold ETF reported that bullion holdings in the fund surged to a new record high of 38.12M oz yesterday. Apart from ETFs, demands for gold coins and bars were also strong, signaling investors' need for safe haven as sovereign crisis deteriorates.