Plunging European markets and a loss of control by the European Central Bank (ECB) over the sovereign bond market in the euro zone foretell a difficult post-Labor Day market in the U.S., said PIMCO’s Mohamed El-Erian in a commentary on Monday.
Citing that day’s plunge of bank stocks on the European bourses because of the massive amount of debt they hold, El-Erian, PIMCO’s CEO, said it was a reflection of the ECB’s loss of control over the yield on the 10-year Italian bond. He said it was still to be determined whether the ECB permitted the yield to increase—it hit 5.5% on Monday, although the ECB had been working to keep it at or below 5%—or whether the ECB itself had become overwhelmed by market dynamics. One thing, however, he adds, is clear: European markets are in trouble.