SUMMER PUTS EXTRA HEAT ON EURO - At the start of the week, it was all about the US, now it's all about Italy and Spain as the yields on those countries' 10-year bonds hover around 14-year highs. Work is underway to tackle their debt issues, but is it enough to calm the markets?
Justin Urquhart-Stewart of Seven Investment Management in London says lower summer volumes of trading lead to more volatility. He says people have been openly engaging in speculative trading against some countries to see if there was weakness, with a lack of confidence in the Italian government adding to its problems.
He says the ECB will probably intervene to buy Italian and Spanish bonds in the short-term.
In the long-term, the analyst believes the ECB and euro zone leaders will have to move towards greater budgetary harmonisation, the use of euro bonds and a stronger European Central Bank. He says a fundamental reorganisation of the euro zone is needed, including tax harmonisation. Mr Urquhart-Stewart says that if this is not acceptable, a north-south euro split is 'quite feasible'.
He says that overall, the world economy is heading for a period of anaemic growth, and even if there was not a recession, it would feel like one.
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CURRENCIES - On the currency markets, the euro is trading at $1.4305 and 87.27p sterling.
