US Bonds beats Eurobonds

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Barroso tees up Eurobond proposal
-BRICS to discuss additional Eurozone funding
-US retail sales comes out flat
-UK retail sales out at 9.30am

Markets prepared themselves for a glum day of trading yesterday morning. There seemed very little to be optimistic about following the credit downgrade of the two French banks SocGen and Credit Agricole. How quickly things can change.

The head of the European Commission, Jose Manuel Barroso, said he would soon deliver proposals for the issue of Eurobonds. Eurobonds would provide the cash-strapped peripheral economies with much easier access to funding. Although Eurobonds are only at the concept stage and despite Germany being strongly opposed to the idea, equity markets responded well to the news and the euro strengthened. There was more good news to come.

Firstly, leaders of the BRICS (Brazil, Russia, India, China, South Africa) economies are meeting at the annual World Bank and IMF summit next week to discuss providing further financial support for Europe. Secondly, following a conference call between George Papandreu, Sarkozy and Merkel yesterday evening, all parties stressed that Greece will remain in the Eurozone in a renewed showing of unity. Traders will remain cautious over sovereign debt contagion but that’s exactly what they needed to hear.

In the US, retail sales showed no growth relative to last month’s reading. Although the Eurozone was the main area of focus for investors this was a stark reminder that the world’s largest economy is still coughing and spluttering along.

The UK unemployment rate came in at 7.9% as expected as the private sector struggles to absorb public sector job cuts. This will undoubtedly put further pressure on the BoE to introduce a second round of quantitative easing before the year is out.

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US Bonds beats Eurobonds

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