Spain’s borrowing costs increased once again as lenders demanded higher yields on benchmark 10-year bonds, breaching 7% which is believed to be unsustainable in the long term.
This has come after Moody’s cut Spain’s credit rating to one notch above junk. Italy also saw borrowing costs rise, selling bonds repayable in three years with a yield of 5.3% up from 3.9% the previous month. Moody supported the downgrade as they firmly believe that the €100 Billion bank bailout will simply add to the government’s borrowing.
Chancellor Merkel rejected quick solutions proposed to fix Europe’s financial crisis such as joint debt sharing, saying that Germany cannot save the Eurozone alone.
Consumer confidence in the U.S rose for a 4th week as more Americans said that their personal finances are improving. However, with more Americans unexpectedly applying for jobless benefits last week and consumer prices dropping by the most they have in three years, it is likely to increase pressure on the Fed to support the economy. The USD weakened against the Euro.
Last night’s joint Mansion House speech from Mervyn King and George Osborne was full of surprises. Not only did the two relax the terms of the Vicker’s project but the strongest indication yet was announced for further asset purchases from the Bank of England. £5 Billion will be injected into the financial sector on a monthly period by the BoE, and an additional £80 Billion will be given to banks in the UK to improve lending conditions to SME’s and private individuals. The cheaper loans will be offered by the BoE in return for high quality government bonds.