Fears of a 'Euro Quake'

SPANISH government bond yields are starting to hit fresh highs, causing more harm to global markets. Most key PNG commodities are down while some analysts have started making calls on how the European sovereign debt crisis could play out.

Macquarie Private Wealth outlined three scenarios for the possible "euro quake" ahead.

The first one envisaged policy makers would agree on mechanisms to allow the heavily indebted countries to exit the euro currency union.

The second scenario was based on a "muddle through and monetise debt" approach and the last one was creatively titled "every one for themselves and financial autarky" - based on a return to protectionist economic policies by euro member states.

The "muddle through" approach was considered by analysts as the only option that would not lead to "sustained social breakdown in Europe" and associated market carnage.

Bell Potter managing director Charlie Aitken is expecting to see some sort of quantitative easing from the European Central Bank and large scale intervention "in the most topical sovereign bond markets".

He expects commodities and stocks tied to Chinese growth to benefit from such a move.

"When we do get large-scale QE from the ECB, you will not want to be short ‘risk'," he said in his morning report yesterday.

Meanwhile, London Metal Exchange cash copper closed at $US7517.75 a tonne overnight, down 1.3% from last Friday.

LME cash nickel remains low as it closed at $18,184/t overnight.

It was a minor 0.63% gain from the end of last week.

Singapore Tapis crude slumped by 2.7% from last Friday to $120.48 a barrel overnight, providing some hope of lower fuel costs for mining companies in the Asia Pacific region.

Spot gold is trading around $1724.75 an ounce this morning, down 3.6% from last Friday.

Most stocks on our watchlists were in negative territory for the week.

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