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 EUR700bn 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.