News that Portugal has passed its budget successfully and a slight recovery on Wall Street after an opening slump has pulled the FTSE 100 from its lows.
After hitting 5599, the leading index is now at 5686.43, down just 12.50. The Dow Jones Industrial Average, off more than 100 points initially, has recovered to show a 63 point loss at the moment in what is only a half day's trading, following the Thanksgiving break.
But the euro slid to a new two month low despite the EU refuting talk that Portugal needed an immediate bailout, while Spain also denied it needed help with its finances. Spreads between German bonds and those of Spain, Portugal and Ireland earlier hit new highs since the formation of the euro, although they have since regained some ground. Kathleen Brooks at Gain Capital said:
The European crisis has trumped fighting talk from North Korea to be the main market mover today. The sovereign debt crisis has gone from third to fifth gear in just a matter of days. Whereas the Greek crisis and the start of the Irish crisis were concerned with individual sovereigns and their problems, the current chapter of Europe's sovereign woes has turned into a periphery-wide issue where no one is safe. The question now is who could be next after Spain – Italy? Will the markets' focus eventually turn to France, which had a 7.5 per cent budget deficit in 2009?
The worry is that investors will start targeting German bonds as they price in the cost to Europe's largest economy for rescuing the troubled periphery.
Banks led the way down, on concerns about their exposure to Europe. Royal Bank of Scotland has dropped 1.84p to 39.02p while Lloyds Banking Group is 2.37p lower at 62.33p.
