Spain takes centre stage

U.S. and European markets slumped overnight on speculation that Europe’s sovereign debt crisis is leading to a European banking crisis. The S&P 500 has now tumbled more than 7% from a four-year high in April as Greece’s government failed to form a government and global economic data continued to disappoint. European banks, weak U.S. economic data and lower consumer confidence did not stop Facebook from raising a massive US$16 billion in the biggest IPO on record. After stock markets closed, Moody’s Investor Service downgraded Spain’s two largest banks, Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, by three levels, among 14 others, citing the nation’s worsened economic outlook and mounting loan losses.

Mario opens the door for a Greek exit

The European Central Bank (ECB) caused a stir in the markets overnight as it distanced itself from Greece, with President Mario Draghi raising the possibility, for the first time, that Greece may leave the monetary union. The ECB also said that it will temporarily stop lending to Greek banks, leaving that responsibility to the Greek central bank, until its banks have sufficiently boosted their capital ratios. Does it also seem to you that the ECB is preparing for Greece leaving the euro-zone? Losses were limited on the other side of the Atlantic as U.S. industrial production gained 1.1% in April on higher vehicle manufacturing and utility output, and U.S. housing starts unexpectedly rose 2.6%, adding to signs that the U.S. housing market is stabilising.

Dependent on the German engine

Before collapsing on speculation that Greece will have a second round of elections, European stocks were up overnight on the back of some positive (yes I said positive) euro-zone economic data. A report showed that Germany’s economy expanded 0.5% during the first quarter of 2012, helping the euro-zone as a whole avoid a recession. Germany’s economy was one of only two in the euro-zone to expand last quarter (the other was Austria). Greece, meanwhile, shrank 4.2%. If we exclude the German result from the overall euro-zone figures, the region’s economy contracted by 0.2% in the first quarter. This highlights a trend in Europe of a growing dependency on Germany for growth; Germany’s economy accounts for around 28% of euro-zone output, but since 2007 its economy has been responsible for 65% of the region’s growth in output.

China & the Whale sink global markets

International stocks retreated on Friday as Chinese economic data disappointed and ‘the Whale’ (as the trader in question is known) made a big splash on global markets after JPMorgan Chase reported a “self-inflicted” US$2 billion trading loss, breaking the prior record made in 2008. China’s industrial production grew the least since 2009 in April, retail sales and new yuan loans missed estimates, while inflation was below target, boosting speculation the government will take additional steps to stimulate the Chinese economy. Many economists are now expecting a cut in China’s bank reserve requirement ratio (RRR) of up to 50 basis points (bps) before the end of May. Any cut in China’s RRR, especially considering the current negative market sentiment, will be broadly positive for commodities and the Aussie dollar.

The baton is passed to Pasok

European stocks reversed an early drop following a weak lead from Asia, as the mandate to form a Greek government was passed to Evangelos Venizelos, the leader of Greece’s socialist Pasok party, which came third in the elections. Pasok said his goal is to form a government that will ensure Greece remains in the euro-zone. According to 57% of 1,253 investors, analysts and traders surveyed by Bloomberg this week, at least one country (i.e. Greece) will leave the euro-zone by the end of the year. U.S. stocks opened higher, rebounding from six straight days of losses, on a report that showed initial jobless claims unexpectedly dropped last week to the lowest level in a month. This report comes after softer weekly and monthly jobs figures during April, easing concerns that the labour market is softening.

A junior Chilean copper explorer with 'drill-ready' targets

Seismic Research is initiating coverage on Estrella Resources (ASX: ESR) with a 12-month target price of A$0.46 per share, based on a peer analysis valuation. We think this star will burn bright.

ESR is a junior copper-gold explorer primarily focused on developing its flagship Agustina Copper-Gold Project (100% ESR), which covers an area of 18.5km2, located around 90km northeast of the mining town of La Serena, in the prolific copper-producing belt of central northern Chile. Agustina is an advanced exploration-stage project with ‘drill-ready’ exploration targets. The Company is aiming to release a maiden JORC-compliant resource at Agustina by the first quarter of 2013.

A Queensland coal explorer with ‘drill-ready’ exploration targets

Allegiance Coal Limited (‘Allegiance’) is a coal exploration company with a portfolio of advanced and early-stage projects that cover a number of Queensland coal basins. While the company plans to simultaneously develop its 14 tenements, Allegiance is focusing most of its time and resources on the Back Creek and Kilmain projects, located in the prolific coal-producing regions of the Surat and Bowen coal basins, respectively.

A junior copper explorer in the Chilean porphyry copper belt

Serena Resources Ltd ('Serena') is a junior copper explorer focused on developing two copper projects in Chile; the Madrugador Copper Project (80% option), an advanced-stage project in Northern Chile, and the Trebolar Copper Project (75%), an exploration-stage project located ~450km north of Santiago. The Madrugador Project has an independently-verified NI 43-101-compliant resource of 13.58Mt at 0.64% copper. The Trebolar Copper Project consists of a large (> 200km2), high-quality tenement package located close to Barrick's world-class Pascua-Lama Gold-Silver Project.

Near-term gold production from the Eastern Goldfields, WA

Exterra Resources (ASX: EXC) has acquired a portfolio of development- and exploration-stage gold projects, located in the Eastern Goldfields region of Western Australia. The Zelica Project (100% EXC), which hosts a JORC-compliant resource of ~86,000oz of gold ('Au'), has the potential for near-term (early 2012) production. Early cash flows generated through Zelica will be used to fund the exploration and development of EXC's high-grade resource at Linden (207kt at 7.9g/t Au, for 52.3koz Au).

Exploring for Rare Earths in the East Kimberley Region, WA

Kimberley Rare Earths Limited (ASX: KRE) offers cheap exposure to the booming rare earth elements sector through a 25% interest in the Cummins Range Project, which hosts a JORC-compliant Inferred Resource with drill-ready exploration targets. This resource has a high-grade (> 3% REO) north-west trending corridor and, as a result, the deposit could potentially have a very low strip ratio.