Pain in Spain
Yields rising
Spanish equities have slumped to multi-year lows as the government is still grappling with its imploding banking sector. Bond yields on Spanish debt have risen to a euro-era high and are within touching distance of potentially unsustainable levels. The latest plan to recapitalise the troubled Bankia involves Spain's FROB bank rescue fund, although it currently appears underfunded. Meanwhile, the next crisis in the bloc could be Italy, whose borrowing costs are rising in step with Spain’s and passed through 6 per cent this week.
Jaguar roars
Carmaker thriving
Indian-owned Jaguar Landrover is enjoying a renaissance. The car maker reported record annual results this week with revenues 37 per cent higher at £13.5bn and profits up by the same margin at £1.51bn. Overseas sales were the driver with European growth in particular a surprise factor with sales up 22 per cent in Germany and 57 per cent in France. Sales to emerging markets were also buoyant with Chinese sales ahead by 76 per cent and even UK sales rose by a modest 3 per cent. The strong performance is a boost to workers at Jaguar's three UK factories.
Facebook falls
Investors 'unlike'
Red faces all round for those involved with social media giant Facebook's initial public offering after its shares dipped below the $30 level earlier this week. The company has already shed more than $40bn of its market valuation since its floated with a price tag of $104bn and investors in the US are launching class action lawsuits against chief executive Mark Zuckerberg, the company and its banks. US authorities are also investigating whether negative information was given to some institutional investors but withheld from retail buyers ahead of the float.
Retail rebound
Sunshine helps
UK retail sales are reported to have rebounded strongly in May as shoppers enjoyed the dramatic turnaround in the weather. A Confederation of British Industry survey found that 43 per cent of retailers reported an uplift in sales during May against a year earlier, compared with 23 per cent who reported a fall. But the uplift is unlikely to be able to compensate for the plunge suffered during April’s deluge and it still remains to be seen what effect the four-day long Jubilee celebration weekend will have.
Don't rely on China
No stimulus, yet
Rumours that China was about to embark on another monster stimulus of its economy were dashed this week as the Xinhua news agency said: "The Chinese government’s intention is very clear: It will not roll out another massive stimulus plan to seek high economic growth. The current efforts for stabilising growth will not repeat the old way of three years ago." A small scale stimulus is still likely but won't be labelled as such, analysts expect to see infrastructure spending ramped up but with more financial input from the private sector than previously seen.
‘Disintegration’ looms
Commission warning
The eurozone is facing 'financial disintegration'. This is not the warning of some doom mongering eurosceptic but the words of the European Commission itself in a 1,000 page document published on Wednesday surveying the state of the economic bloc. The Commission suggests that the eurozone should consider using its bailout funds to directly bail out troubled banks and should consider some sort of fiscal consolidation in the form of Eurobonds or a pooling of eurozone debt. The latter suggestion is gaining some traction in European capitals and would involve a pooling of debts over the 60 per cent of GDP level into a redemption fund which would be funded by joint bonds.
