Stock markets in Europe have had early gains reversed today as the effect of the intervention of the European Central Bank (ECB) in buying Italian and Spanish bonds appears to be waning.
Both Italian and Spanish stock markets registered early gains when the markets opened this morning but fell back as the morning progressed.
Yields on Italian bonds fell from upwards of six per cent to about 5.2 per cent. Spanish bond yields fell by a similar amount after the ECB bought up bonds to try and stave off a deepening of the euro debt crisis.
However, after an initial rally stock markets across the globe appeared to see the move as not being a comprehensive solution to the problem.
In Paris the Cac 40 index fell by almost two per cent and in London the FTSE 100 fell by a similar amount. Earlier in the day Asian shares fell, led by concerns over the effect of Standard & Poor’s (S&P) downgrading of the United States credit rating from triple-A to AA+.
Most analysts believe the markets are likely to remain volatile in the coming weeks despite concerted efforts from senior European Finance ministers and governments to address the crisis.
G7 countries and the ECB have attempted to install some confidence in the markets by buying up government bonds of countries severely affected by the crisis. Bonds consist of government debt issued to raise cash. New bonds issued help to pay maturing bonds and if investors don’t buy the new bonds then their old debts are not repaid and the result is that governments cannot pay their debts.
Analysts have mixed views over where the centre of the problem lies. S&P have come in for criticism from some for their actions with some commentators saying that the effect of the downgrade is not commensurate with the original problem.
However, many commentators believe that it is vital that the US administration focuses on reversing the problems that caused S&P to downgrade the US’s credit rating.
Dominic Rossi, Chief Investment Officer of equities for Fidelity International said: “Good can come from the S&P downgrade, if this humiliation stirs Washington into action. The risk is they will focus on the AAA ratings from the other agencies, and bad mouth S&P instead.”
However, other analysts believe the situation in the eurozone is the epicentre of the crisis and requires the most attention. They see the intervention by the ECB as another short-term measure which won’t calm markets for long.
Investors want to see countries reduce their level of debt by spending less and raising more in tax revenue. However, this policy will not see immediate returns suggesting that he crisis is far from over.
The fear that governments and investors have is whether remedial action will take effect before the US and countries in Europe enter a double-dip recession. These fears have manifested themselves already in the reduced value of oil and the continued rise in the value of gold as investors flee assets they see as broken and seek the safe haven of gold.
Both Italian and Spanish stock markets registered early gains when the markets opened this morning but fell back as the morning progressed.
Yields on Italian bonds fell from upwards of six per cent to about 5.2 per cent. Spanish bond yields fell by a similar amount after the ECB bought up bonds to try and stave off a deepening of the euro debt crisis.
However, after an initial rally stock markets across the globe appeared to see the move as not being a comprehensive solution to the problem.
In Paris the Cac 40 index fell by almost two per cent and in London the FTSE 100 fell by a similar amount. Earlier in the day Asian shares fell, led by concerns over the effect of Standard & Poor’s (S&P) downgrading of the United States credit rating from triple-A to AA+.
Most analysts believe the markets are likely to remain volatile in the coming weeks despite concerted efforts from senior European Finance ministers and governments to address the crisis.
G7 countries and the ECB have attempted to install some confidence in the markets by buying up government bonds of countries severely affected by the crisis. Bonds consist of government debt issued to raise cash. New bonds issued help to pay maturing bonds and if investors don’t buy the new bonds then their old debts are not repaid and the result is that governments cannot pay their debts.
Analysts have mixed views over where the centre of the problem lies. S&P have come in for criticism from some for their actions with some commentators saying that the effect of the downgrade is not commensurate with the original problem.
However, many commentators believe that it is vital that the US administration focuses on reversing the problems that caused S&P to downgrade the US’s credit rating.
However, other analysts believe the situation in the eurozone is the epicentre of the crisis and requires the most attention. They see the intervention by the ECB as another short-term measure which won’t calm markets for long.
Investors want to see countries reduce their level of debt by spending less and raising more in tax revenue. However, this policy will not see immediate returns suggesting that he crisis is far from over.
The fear that governments and investors have is whether remedial action will take effect before the US and countries in Europe enter a double-dip recession. These fears have manifested themselves already in the reduced value of oil and the continued rise in the value of gold as investors flee assets they see as broken and seek the safe haven of gold.
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