Friday, 15 June 2012

Spanish yields rise again, UK announces move to boost credit

Spain remained a focus of market attention on Thursday. Its 10-year yield rose to a euro-era record of 6.998 percent before retreating to 6.92 percent, still leaving it up 16 basis points for the day.

However, US stocks shrugged off the worries over Europe on Thursday. The S&P 500 rose 1.1 percent on hopes for central bank action.

Thursday's US economic data did boost the case for further easing by the Federal Reserve. Initial claims for jobless benefits rose by 6,000 last week, the fifth increase in six weeks, and consumer prices fell 0.3 percent in May, the sharpest drop since December 2008.

In the euro area, consumer prices fell 0.1 percent in May, bringing the 12-month inflation rate down to 2.4 percent from 2.6 percent in April.

In deflation-prone Japan, Thursday brought the disappointing news that industrial production for April has been revised to show a 0.2 percent decline from the initially-reported 0.2 percent increase.

It was the UK, however, that announced action to improve financial conditions on Thursday. Reuters reports:

Britain's government and the Bank of England will flood its banking system with cash in a coordinated move to get credit flowing through its recession-hit economy, as the euro zone crisis casts a "black cloud" over the world economy.

The country will launch a scheme to provide cheap long-term funding to banks to encourage them to lend to businesses and consumers, and the central bank will activate an emergency liquidity tool, BoE governor Mervyn King said in his annual Mansion House policy speech to London financiers.

However, in India, efforts to boost economic growth are being made more challenging by the fact that inflation remains elevated. The inflation rate rose to 7.55 percent in May from 7.23 percent in April.

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