Mamma Mia!!

As much as
European bankers try to stop it, contagion appears to be spreading through the
Eurozone with Italy’s
high debt burden and lack of political will leading to more emergency
meetings.  Reports that their debt stands
at double Greece, Ireland and Portugal combined led to equity
markets slumping and bond spreads jumping. Europe
signed a treaty to establish a permanent €700bn bailout fund, but this is only
available from 2013. In the meantime, a second bailout for Greece is still being agreed with the hope this
will shield Italy.
Last night, Moody’s downgraded Ireland
into the junk territory saying “it is likely that, like Greece and Portugal,
Dublin will
need another bailout before it can return to the markets.

Meanwhile, the UK received
some unexpected news with a fall in inflation; the first negative number for
June since 2003. The figures showed CPI rising by 4.2% against expectations of
4.5%. This gave a mixed view for the UK economy as on the positive side,
it shows the huge rise in inflation potentially starting to tail off and drop
towards the target level. Unfortunately, the main reason for things becoming
cheaper is retailers having to slash prices to entice the public to spend what
little cash they have. Overall, Sterling
was pretty steady after these figures and moves were mostly as a by product of
massive swings in Eurodollar.

The volatility
has continued today as the uncertainty surrounding many of the worlds markets
has left traders and investors with massively diverging opinions. It seems to
be “watch this space” at the moment while we wait for more news out of Europe.

Report by Tim Lewis