SOME BETTER-THAN-EXPECTED NEWS from the United States on the jobs front, and rumours that the European Central Bank was ready to buy Spanish and Italian bonds, helped to reverse some of the earlier losses on the stock markets today.
European markets were down by as much as 4 per cent in some cases, with the FTSE taking the largest hit as shares in Barclays and Lloyds TSB fell by as much as 10 per cent at one stage.
Before that, Asian markets had recorded steep losses with Japan’s Nikkei down by 3.7 per cent, and the Hang Seng index in Hong Kong down by 4.3 per cent.
But by lunchtime the drop had lost momentum, as rumours emerged that the European Central Bank was preparing to buy large chunks of Spanish and Italian government bonds, in a bid to drive down the cost of borrowing for those countries.
The cost of borrowing for those two countries both dropped on the news, with the Spanish 10-year bond yielding only just above 6 per cent by the close of trading this evening.
Similarly, the Italian 10-year interest rate stood at 6.08 per cent – well below some of the peaks registered earlier this week.
Both countries had seen their bonds rise perilously close to the 7 per cent threshold in recent days; that mark had been the line at which the EU and IMF had stepped in to offer bailouts to Greece, Ireland and Portugal.
As markets closed, the FTSE had restricted its losses to 2.7 per cent – still marking a drop of almost 10 per cent over the course of the week – while in Dubiln the ISEQ Index dropped 1.5 per cent to close at 2506.48.
The cost of Irish government borrowing was also at its lowest for four months, with the market yield on 10-year bonds standing at just over 10 per cent – a price last seen on April 20 when the cost broke through the 10 per cent barrier for the first time.
That, no doubt, was helped by S&P’s decision not to further downgrade our bonds – and some words of optimism about returning to bond markets and getting out of the EU-IMF bailout programme.
At the time of writing the main US markets were in positive territory – the NASDAQ was trading flat, while the Dow Jones and S&P 500 indexes were up by 1 per cent.
That move into positive territory – which would end eight straight days of losses – was fuelled by better-than-expected news on the creation of American jobs.
The Bureau of Labour Statistics said 117,000 new jobs had been created in July – beating the expectations of the market, which had expected around 85,000 – while the unemployment rate fell slightly to 9.1 per cent.
Market confidence was also boosted by late reports that Italy was about to introduce a new law – similar to that passed by the US earlier this week – barring it from any new borrowing, and forcing it to balance its budget.
Fears of an Italian bailout were particularly strong because of the size of Italy’s national debt, which is far higher than that of any other EU country.
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