The markets remain tense as we move into the weekend, even in spite of Italian politicians lending their support to Mario Monti being appointed as interim prime minister. The markets are hoping that the replacement of current Prime Minister Silvio Berlusconi will be someone who is able to push through reforms that EU, IMF and the markets think Italy needs to bring make its huge debt pile manageable.
So far the key market’s approval verdict- the yields on Italian bonds however have refused to budge below 7.0%.
To compound Euro-zone woes Standard & Poor’s, the ratings agency, mistakenly suggested that it had downgraded France’s Triple-A rating sending yields on French debt markedly higher.
The spread between French and German borrowing rates moved to a new high of 1.7 per cent and the Euro followed suit losing ground against the Dollar and Sterling.
This morning there are reports that the ECB has begun buying bonds in the secondary markets, which is lifting the Euro in early trading.
Money data wise this morning the main focal point will be UK PPI numbers which are important to keep an eye on giving the Bank of England is waiting in the wings to further expand QE either next month or early next year if the economic picture continues to deteriorate.
Most of the financial newspapers are reporting the news that UK gilt yields continue to fall, and that the UK government bond market is now a safe haven for investors.
The market can be very fickle, and it could be a combination of risk aversion and front running the Bank of England that is driving down yields rather than any expression of confidence in the UK economy as a whole.
Today is a bank holiday in America so we can expect very light trading after lunch. Next week sees a large amount of data released on the US, UK and eurozone including German GDP and CPI data in the US.