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The economic equivalent of Ebola stalks Europe

Published Friday, October 17th, 2014

The markets were crying out for volatility and now they have it. Closing numbers on stock markets may not show much change yesterday but that hides major intra-day moves. The S&P was down another 3% at one point but closed only – 0.01%. Better-than-expected numbers on US industrial output and jobless claims calmed nerves and an unexpected boost came from a hawkish member of the Federal Reserve who suggested that it could delay the ending of its bond buying programme. It was only a comment! The S&P is now down 7.4% from its Alibaba high on September 19.

The FTSE 100 only lost 0.25%, leaving it down 9.9% from this year’s high. Other European stock markets fared less well. The problems in the eurozone are well known and becoming too many to list. Investors are responding by demanding higher yields to hold eurozone bonds except for Bunds. The spread against Italian and Portuguese bonds against Bunds has widened and Greek 10 year yield moved above 9%. A second eurozone crisis is beckoning stalked by the ogre of deflation confirmed at only 0.3% in September. Italy, Spain, Greece, Slovenia and Slovakia have already caught the economic equivalent of Ebola.

Angela Merkel added to the angst yesterday by telling parliament in Berlin that “all members must fully respect the reinforced rules of the stability and growth pact”. It may seem to be a reasonable approach but Germany’s ‘balanced budget blindness’ is confrontational and plays right into the hands of the Front National in France, UKIP in Britain, the Five Star Movement in Italy, Syrzia in Greece, and the AfD in Germany.

to read the rest of the report, please click here 

Posted by David Hufton