Member Article

Spanish economic woes weight on European markets

Markets paused for breath this morning after the strong gains seen in the closing stages of yesterday’s trade. The FTSE 100 opened slightly higher but it wasn’t long before it dipped into negative territory, reaching new lows throughout the day to eventually finish 36.6points, or 0.62%, lower at 5838. The German DAX and the French CAC were weaker by 1.05% and 1.62% respectively. The decline in the UKs index was led by banking stocks, with the UK’s Barclays, Lloyds and RBS all losing more than 2.5%.

Form an economic perspective, Spain was debating the recently proposed 2012 budget today and news headlines from Madrid informed investors that the country’s debt-to-GDP ratio will reach 80% in 2012. Whilst this isn’t horrific in comparison to its peers, or indeed the UK, it represents a worrying increase from the 68.5% in 2011, and demonstrates how quickly the metric can deteriorate when the numerator (debt) grows whilst the denominator (GDP) is shrinking. The news came with jobless data that indicated that unemployment had reached a record high in the country today, with the general unemployment rate at 23.6% and a staggering 50.5% when measured at the youth level (those aged under 25).With focus shifting to Europe’s weakening periphery, investor’s concern was evident in the selling of Spanish and Italian 10 year government bonds, which were trading at yields of 5.41% and 5.13% respectively.

UK construction PMI data was well ahead of expectations, with a reading for 56.7 in March against the forecast 53.5. Combined with expansionary manufacturing indices last week and other recent data, analysts cautiously suggest that the data bodes well for the UK’s economic growth in the first quarter of the year. With the services sector however making up the majority of the British economy, PMI data for this sector out tomorrow is keenly awaited and will provide a better insight into the UKs economic growth so far in 2012.

This was posted in Bdaily's Members' News section by James .