Online spread betting markets continued to retreat this afternoon as enthusiasm faded over an EU deal on greater fiscal integration and as ratings agencies threatened that an additional 'shock' was required before Europe agrees on a solution.
By 3pm (London time) the FTSE 100 slid 1.4% to 5451.92 while in continental Europe equities were around 2.5% lower. On Wall Street, the S&P 500 was down 1.49% to 1236.53, while the Dow had already shed 150 points.
ECB continues to intervene
Friday's EU summit deal to strengthen budget discipline in the Eurozone failed to restore market confidence today, forcing the ECB to step in again. The ECB intervened to buy short-term Italian debt after yields on Italian and Spanish debt spiked.
However, intervention is likely to be limited after media reports said last week that the ECB capped bond purchases at a maximum of €20 billion a week.
Despite the central bank's intervention, Italian five-year bond yields surged above the 7% which is widely seen as unsustainable, while ten-year yields spiked above 6.8%, and Spanish ten-year yields topped 6%.
Nonetheless, an Italian bond auction for short-term paper drove Italian one-year borrowing costs down to 5.9% from 6.09%, which is still deemed an uncomfortably high level.
Gold loses its lustre
The price of gold fell to a three-week low today after the strengthening US dollar, prompted by an increased demand in the safe-haven currency, resulted selling in the bullion. The falling price of gold over the past few weeks comes despite the persistent worry about the deteriorating Eurozone debt crisis and the lack of a solution.
Last week's EU summit saw leaders agree upon beefing up fiscal discipline in the 27-member union, but fell short of market expectations for a more drastic solution to the crisis.
The lack of confidence in European leaders pushed investors into the perceived safety of the US dollar, rather than gold, which has fallen by about 5% in the last week alone. This afternoon, gold prices for January delivery fell 3% to $1661.5 per troy ounce.
In August gold reached a record high of $1921 per ounce, when many market players were sure gold would reach $2000 before the end of the year. This now looks unlikely.
Meanwhile, demand for other commodities spreads was also down. Light-sweet crude oil for January delivery was down 1.45%, silver futures were 3.6% lower and palladium had shed over 4%.
Ratings agencies continue to pile on the pressure
Ratings agencies continued to add pressure onto EU leaders today after Moody's warned that Eurozone governments would remain under pressure in the absence of decisive action, while the unity of the region remains under threat.
The warning was followed by an announcement from Standard & Poor's which said that the EU will require additional summits if it wishes to resolve its crisis, though it said that last week's deal was a significant step in resolving confidence. The agency further warned that time is running out and action is needed on both the fiscal and monetary side.
The agency, which placed 15 Eurozone countries on watch for a potential downgrade last week, said that another shock is probably required before everyone in Europe finally agrees on a solution.
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'Online Spread Betting Markets Tumble on Ratings Agencies EU Warning', Article by IG Index, last update: 12-Dec-11
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