Markets anxiously await news from the Eurozone leader summit in Brussels today. Uncertainly going into the meeting remains widespread with global markets declining on Tuesday. Expectation that Europe's leaders will not reach an agreement to solve the sovereign debt crisis today sent French and Italian bond yields higher yesterday.
BBC News
Moody's has downgraded the credit rating of 12 UK financial firms including Lloyds, RBS, Nationwide and Santander. Moody's said it now believed the UK government was less likely to support some firms if they got into trouble.
Despite the European Central Bank allotting €489 billion in three year long-term refinancing operations to over 500 banks, markets only offered brief respite yesterday. Although the large LTRO take up may help provide banks with a buffer against the €210 billion of bonds maturing in the first quarter of 2012 – the majority of the total, simply represents a rollover from previous ECB refinancing operations. Moreover, such operations are unlikely to provide significant amounts of fresh liquidity or dramatically increase demand for peripheral government debt. Ultimately investors hoping for a quantitative easing style impact may be disappointed. Nonetheless the MPC minutes released yesterday did suggest, ‘in due course’, the committee are willing to conduct further stimulus should the economy require it, which is widely anticipated for February 2012.
Telegraph
The Bank of England was forced to abandon part of its quantitative easing (QE) programme after city traders made government bonds too expensive for the Old Lady to buy.
Equities markets responded positively to remarks made by the commissioner for economic affairs who suggested that EU finance ministers were investigating ways to coordinate a recapitalisation of financial institutions. Global stocks continued to rally on Wednesday with the FTSE 100 ending the day up 157 points to 5,102. Notwithstanding the UK economy continues to stall with, with revised GPD figures showing that Britain's economy second quarter growth was an anaemic 0.1%. Equities also brushed aside news of an Italian sovereign debt downgrade. Markets now brace themselves for the European Central Bank and the Bank of England's decision on interest rates expected at midday.
