World’s Investors Closely Following Situation in Europe

According to a report published by the UK Bureau of National Statistics, the level of inflation in the country rose in August. The Consumer Price Index went up 4.5% in annual terms compared with July growth of 4.4%, and inflation was up 0.6% in the monthly dynamic. This time, 34 analysts guessed right with their predictions on this figure. Last week, the Bank of England decided to leave the country’s interest rate unchanged. Experts believe that this was not an easy decision for the Bank’s leadership to make. On the one hand, the UK’s economy needs the support of a low interest rate, but on the other hand, inflationary pressure twice the amount of the target level is interfering. After the inflation figure was released, the British pound garnered support.

The results of yesterday’s auction of Italian government bonds were quite obvious: investors are still very careful and are demanding even more profits. Demand for Italian bonds was as low as ever and the Italian treasury had to concede to receive the necessary financing. Despite rumors that Chinese investors had promised to support the auction, not much excitement was seen in the Italian bond market. Conversely, those who decided to invest their capital in the Italian economy received the highest yields on 5-year bonds in the EU’s short history today.

EUR 3.865 billion, 4.5%, September 16 – 5.60% yield

EUR 0.6888 billion, 4.50%, August 18 – 5.59% yield vs. 4.950%

EUR 0.740 billion, 4.50%, February 20 – 5.49% yield vs. 3.580%

EUR 1.192 billion, 4.00%, September 20 – 5.47% yield vs. 3.920%

Near the end of the European trading session on Tuesday, all stock markets were in the positive zone. Despite all of the negative news coming from France’s financial sector, the French CAC 40 Index closed at 2894.93, having added 1.41%. The German DAX Index also ended the trading session confidently, adding 1.86%. What then so drastically changed the mood of European investors near the end of the trading day Tuesday? It may be a correction, which is usually how such sharp movements on the market are explained. Or it may be the fact that Angela Merkel and Nicholas Sarkozy didn’t say anything notably bad about the Greek scenario and the market is simply releasing all the negativity that has been accumulating over all these bearish last few days. But there is one curious fact which RoyalMaxBrokers analysts have fixed their attention on. Rumors were circulating among experts that it is perhaps now Russia’s turn to jump into the process of rescuing its closest neighbors’ economies. Russian Finance Minister Alexei Kudrin said in an interview that Russia is ready to invest in Euro bonds when they are finally issued. Recall that Germany and France rejected the idea of creating a unified European Union bond. We await more detailed commentary on this matter.

Asian stock markets are trading in the red this morning. The European currency fell during the Pacific trading session and is now trading at EUR/USD 1.363. The Euro is falling against the Japanese yen for the fifth day in a row already while Asian investors closely follow the developments in the situation in Europe. The Euro lost 0.37% against the yen today and the EUR/JPY pair is trading at 104.83. The Pacific-region MSCI Index lost 0.5% and futures on American stock markets are trading at -1%. The Japanese Nikkei 225 Index lost 0.94%, the Hong Kong Hang Seng Index is also trading in the negative zone at -1.25% and the Korean Kospi Index fell 2.4%. Director of the Fitch ratings agency Douglas Renvik announced yesterday evening that Spain’s rating may be lowered due to the government’s inability to cut the deficit in accordance with an earlier-prescribed schedule. Americans are planning to offer $13 billion of 30-year bonds, the most popular bonds of 2011. American stock exchanges closed in the green zone – the S&P 500 Index added 0.86%, closing at 1171.28, while the Dow Jones added 0.38% and the high-tech NASDAQ Index went up 1.47%.

The US Consumer Price Index for the month of August will be published today at 4:30PM (Moscow Time). RoyalMaxBrokers analysts are predicting consumer prices to go down. At the same time, data on the volume of retail sales in the US will be published, which experts are predicting will fall in August compared to the July figures.