Spain Upsets Investors Again

Investors worldwide were jittery about Spain on Monday, as the Spanish government banned the shorting of stocks on Madrid’s exchange and the Italian government did the same for the Milan exchange.

Investors worldwide were jittery (again) about Spain on Monday, as the Spanish government banned the shorting of stocks on Madrid’s exchange and the Italian government did the same for the Milan exchange. Stocks on those exchanges and around Europe had a bad day anyway, with the Euro Stoxx 50 index dropping 2.6 percent, the German DAX down 3.2 percent and the Spanish IBEX off 1.1 percent.

More worrisome for investors was the cost of Spanish long-term debt, which was still above 7 percent on Monday. Talk of impossibly large bailouts for the Iberian nation, and not just its banks, was rife. As usual in such situations, investors bought U.S. debt, and never mind the “fiscal cliff,” which isn’t until next year. Yields on 10-Year Treasuries hit a record low of 1.4 percent briefly on Monday, before rising slightly at the end of the day.

Wall Street continued to fret on Monday about the situation in Spain as well, and lost ground again. The Dow Jones Industrial Average was off 101.11 points, or 0.79 percent, while the S&P 500 dropped 0.89 percent and the Nasdaq declined 1.2 percent.

California residential defaults down

DataQuick, a San Diego-based real estate data specialist, reported on Monday that the number of California homes suffering through the foreclosure process declined during the second quarter to its lowest level since early 2007, a notable figure considering that California has long been one of the epicenters of the housing crisis. According to the company, the drop was because of an improving housing market overall, but also because of the “burning off” of the worst of the mortgages originated at the mid-2000s peak of the housing bubble. The growing popularity of short sales was also a factor.

A total of 54,615 Notices of Default were recorded on California residences during the second quarter, notes DataQuick. That’s down 2.9 percent from the first quarter, and a drop of 3.6 percent compared with the second quarter of 2011. Notices peaked in the first quarter of 2009 at more than 135,400.

“The foreclosure process has always been the sanitation department of the housing sector,” notes DataQuick president John Walsh in a press statement with some gift for metaphor. “The question is whether these lower… numbers mean that there’s less distress to process, or if we’re just seeing distress get processed at a slower pace.”

Economic activity still below trend, Chicago Fed says

The Chicago Federal Reserve reported on Monday that its national activity index showed that U.S. economic activity did in fact increase in June, but it’s still below historic trend. The index increased to minus 0.15 in June from minus 0.48 in May, led by improvements in production-related indicators, the bank said.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth, by the Fed’s reckoning. But the index rarely registers zero. Negative values indicate below-average growth, while positive values indicate above-average growth.

The index’s three-month moving average, the ponderously named CFNAI-MA3, increased from minus 0.38 in May to minus 0.20 in June—better, but still its fourth consecutive reading below zero. June’s CFNAI-MA3 suggests that growth in national economic activity is below historical trend. On the other hand, the economic growth reflected in this level of the CFNAI-MA3 also means subdued inflationary pressure from economic activity over the coming year, according to the Fed.