Friday, 25 November 2011

European bond yields rise, confidence improves in Italy and Germany

Markets continued to reel on Thursday. Stocks were modestly lower, the MSCI All-Country World Index edging down 0.2 percent.

However, European sovereign bond yields continued to climb. Italy's 10-year yield rose 14 basis points to 7.11 percent while Portugal's 10-year yield jumped 90 basis points to 12.21 percent after Fitch Ratings cut the country's credit rating to BB+. Even Germany saw yields rising, its 10-year yield climbing five basis points to 2.20 percent.

Economic data on Thursday were mixed.

Italian consumer confidence unexpectedly improved in November, Istat's consumer sentiment index rising to 96.5 from 93.3 in October.

Also improving in November was German business confidence, the Ifo index rising to 106.6 from 106.4 in October. German GDP growth for the third quarter was confirmed at 0.5 percent.

UK GDP growth for the third quarter was also confirmed at 0.5 percent but factory orders deteriorated further in November with the Confederation of British Industry industrial trend survey showing that total order book balance fell to -19 from -18 in October.

Europe's debt crisis and its inevitable impact on the rest of the world means that central banks are mostly now in easing mode. The People's Bank of China announced on Thursday that it will cut the reserve requirement ratio for more than 20 rural credit cooperatives nationwide by half a percentage point to 16 per cent.

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