US equities reversed their opening gains after US data showed that the housing market signalled no signs of recovery. Across in Europe, new hopes that eurozone policymakers were putting together fresh measures to help ease the region's debt crisis, but the lack of clarity on their potential effectiveness, saw equities remain volatile, jumping in and out of positive territory.
By 4pm (London time) the FTSE 100 jumped back into negative territory and was 0.1% lower at 5031.69, while the broader FTSE 250 was 0.12% higher at 9827.14.
In the US the S&P 500 and Dow Jones recovered their losses and were 0.28% and 0.77% up at 1139.64 and 10,854.77 respectively.
European Central Bank to the rescue?
Speculation that the European Central Bank (ECB) might cut interest rates to help the economy tentatively calmed financial spread betting investor fears this afternoon over the eurozone debt crisis.
ECB Governing Council member Ewald Nowotny said that the possibility of interest rate cuts should not be ruled out in next week’s European Monetary Policy meeting. ECB policymaker Yves Mersch helped by reiterating that the ECB would do whatever it takes to keep money markets functioning properly.
European policymakers have begun working on new ways to stop Greece entering a default, which could inflict more damage, with some fearing the fallout could match or exceed that of the 2008 collapse of Lehman Brothers.
An announcement from an anonymous eurozone central bank official this afternoon said that ECB policymakers are likely to start a debate next week in restarting their covered-bond purchases, along with further measures to ease monetary conditions.
Meanwhile, planning continues on the basis that Greece's debt burden can be sustained as long as the government fully implements austerity measures demanded by its bailout package.
The first big hurdle is on Tuesday, when Greek parliament is slated to vote on the property tax bill which is meant to close €2 billion holes in the budget this year and next, but has caused outrage. Troika leaders will return to Greece this week in hopes to sign-off on the next tranche of support for Greece before it runs out of money early next month.
Standard & Poor’s threatens further downgrades
European officials, seeking more resources to protect the eurozone against fallout from its debt crisis, are considering ways to increase the impact of the €440 billion fund by leveraging, although it remains unclear exactly how. Some analysts say at least €2 trillion would be needed to safeguard Italy and Spain if the Greek crisis spreads.
However, in a new development, ratings agency Standard & Poor's have now warned that Europe's efforts to ramp up its fight against the eurozone debt crisis could potentially trigger credit rating downgrades in the region.
Although, they said it is still too soon to know how European policymakers will boost the European Financial Stability Facility (EFSF), how effective it will be and its possible credit implications, but it was evident that policymakers cannot leverage the EFSF without limits.
On the economic outlook, S&P sees rising risks of recession in the United States and parts of Europe as their economies continue to struggle.
US housing market dips
US equities temporarily pared gains this afternoon after data showed that the sale of new homes fell in August for the fourth month in a row, indicating that the depressed US housing market showed no signs of recovery.
Sales dropped 2.3% last month to an annual rate of 295,000, the lowest level since February. New single-family home sales in the United States fell in August to a six-month low after peaking in April at 316,000, but the supply of homes available on the market dropped to a record low.
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'Financial Spread Betting Markets Recover on ECB Rate Cut Rumours', Article by IG Index, last update: 26-Sep-11
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