Equity markets continued to fall this afternoon as investors worried about record-high borrowing costs for Italy, plus the Federal Reserve's decision to do nothing new to prop up growth, despite warning Europe's debt crisis could hurt the US economy.
By 4pm (London time) the FTSE 100 had fallen over 2% to 5376.84 while the broader FTSE 250 was 2.36% down at 9726.02. On Wall Street the Dow had shed 110 points to 11,843.99, while the S&P 500 dropped 1.01% to 1213.36.
Bond auctions in focus
Bond markets came back into focus today as Italy and Germany held separate bond auctions.
Despite both nations managing to find an adequate number of buyers, Italy's funding costs reached a new euro-era record at auction on Wednesday, piling pressure onto Prime Minister Monti's government after last week's EU summit failed to convince markets the crisis can be resolved.
Italy's five-year government bond rose to an uncomfortably high level of 6.47%, just minutes after Berlin placed €4 billion of two-year bonds at an average yield of just 0.29%, proving that investors continue to favour safety over returns.
As Italy's debt level inches higher, at €1.9 trillion, and with its yields rising to unsuitable levels over 7%, concern deepens over whether Italy can afford such rates over the longer term.
Spain will also sell bonds this week, with up to €3.5 billion of five-year, ten-year and 20-year bonds due for auction tomorrow morning.
ECB under pressure
Pressure on the ECB to buy government bonds on the secondary market increased today after Italy's borrowing costs continued to surge, following its five-year bond auction.
Over the past few months ECB buying has propped up Italian and Spanish government bonds, with many analysts continue to say the ECB's indirect support has been key in helping troubled Eurozone nations.
Meanwhile, Italian PM Mario Monti said this afternoon that the issuance of common Eurozone bonds by the ECB would help solve Europe's major problems of growth and unemployment. However, German chancellor Angela Merkel continues to oppose this.
Thomas Cook scrambles to find lifeboats
Thomas Cook announced this morning that it will close 200 underperforming shops and 500 hotels, as well as lining up further disposals, as it battles to cut its £900 million debt pile and restore shares spread betting investors and customer confidence.
The world's oldest travel firm said the move was part of a turnaround plan that would hopefully deliver an annual profit improvement of £110 million.
The company's announcement put 660 jobs at risk, and comes after UK data released this morning revealed that unemployment is at a 17-year high. Additionally, Thomas Cook plans to cut its airline fleet to 35 from 41 and invest more in its online business, as customers turn to the internet in an attempt to find cheaper deals.
The travel agent also released its full-year results today, with operating profit down by 16% to £304 million in the year to September, coming in at the bottom end of forecasts. The firm also reported a pre-tax loss of £398 million for the year to September, after revealing £573 million of exceptional losses, including £430m of write-downs.
The future of Europe's second-biggest travel firm by sales has been in question since it asked lenders to come to its rescue twice in five weeks, and after it warned of a possible debt default. Nevertheless the company's acting CEO said he is fully confident that November's troubles are behind them and that the company will be around for a long time to come.
Shares in Thomas Cook, which have crashed by more than 90% since the start of the year, were down over 4% to 14.2p this afternoon.
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'Shares Spread Betting: Thomas Cook Fall on Shop and Hotel Closure Plans', Article by IG Index, last update: 14-Dec-11
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