Unfortunately, in financial markets at least, it is rarely the merry month of May. Last week was another sea of red, with equity markets on the slide, high-beta currencies heading south and core G4 bond yields declining. Spanish equities were singled out for the harshest treatment, falling another 3%, with the financials again hard hit. The Aussie is back at parity, the euro is under 1.29, and cable is near 1.6050. German 10yr bund yields fell below 1.5%, at the same time as the 10yr yield in Spain rose above 6.0%. Apart from the deteriorating political situation in Greece and the equally disturbing Spanish banking predicament, markets were rattled by the massive loss recorded by one of the units of J.P.Morgan. Overnight, the mood stabilised slightly after China decided to reduce the bank reserve requirement (RRR) by 50bp (see below). Worryingly, many of those forces which were so unsettling last week are still in play, including growing speculation that Greece may well leave the euro before too long
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