Eurozone Crisis: Stocks, The Euro And Italy Hammered As Markets Wait For The Bazooka

Stocks, The Euro And Italy Hammered As Markets Wait For The Bazooka

European stocks took a hammering on Wednesday, as hopes began to wane that the European Central Bank (ECB) would be given a license to expand its bond buying programme.

The German DAX and French CAC-40 fell 1.6% and 3%, respectively, while the FTSE-100 was down more than 2% on a combination of domestic and European economic worries. The UK's Office of National Statistics released new data showing that unemployment was at 17-year highs.

Both German Chancellor Angela Merkel and the president of the Bundesbank, Jens Weidmann, reiterated their resistance to using the ECB's theoretically unlimited liquidity to intervene directly or to lend money to the IMF to give it the firepower to bail out Italy.

Some in the market are saying that €1tr ($1.3tr / £849bn) - provided through a combination of the ECB, the IMF and the European Financial Stability Facility - a eurozone bailout mechanism - will be needed to satisfy investors that Italy, Spain and peripheral countries can be supported enough to ensure that they do not default.

That money may never need to be used, but markets need to see that it is there before they are willing to risk their money financing those struggling countries.

An Italian auction of five-year bonds attracted euro-era record yields of 6.47% on Wednesday morning, showing that investors are still shying away from exposure to the country, despite reassurances from the EU that they will not find themselves taking voluntary "haircuts" on the value of their bonds in the event of a Greek-style restructuring of Italian debt.

By contrast, Swedish and German bond auctions saw strong demand and low yields, as investors sought out relative safe havens.

The euro plunged below 1.3 to the US dollar, as pessimism set in, although on the margin some buyers might have been expecting some form of monetary stimulus from the Federal Reserve in the US, which would have pushed the dollar down.

Real economy indicators, such as today's industrial output figures, have been pointing towards a new recession in the eurozone, which added to the negative news flow.

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