The map of Europe features on the face of a two Euro coin in this photo illustration taken in Rome
The map of Europe is featured on the face of a two Euro coin seen in this photo illustration taken in Rome, December 3, 2011. REUTERS

1555 BST: Rounding out the month

Selected monthly declines for major European markets as we round out trading for May:

FTSE 100: -6.1 percent

CAC-40: -6.7 percent

DAX: -6.8 percent

FSTE Eurofirst 300: -7 percent

Athens General Index: -25 percent

IBEX 35: -13 percent

FTSE MIB: -11 percent

1545 BST: Protection rising

Credit default swaps on Spanish government debt are trading at 600 basis points this afternoon, according to data provider Markit. The cost of insuring €10m bonds from default is now €600,000 each year for five years. Italian government bond CDS are quoted at 560 basis points, just 10 basis points from an all-time high.

In the cash market, Spain's benchmark 10-year bonds are priced to yield 6.66 percent while Italy's are priced to yield 5.93 percent.

1533 BST:I wonder what they'll talk about

An IMF spokesperson said today that Spain's Deputy Prime Minister, Soraya Saenz de Santamaria, will meet with Fund officials later today in Washington ahead of its regular annual review of the Spanish economy on 4 June. No funds have been requested, the spokesperson said, and no plans of any kind have been drawn up that would involve financial assistance to Spain.

1500 BST: Denmark cuts key rate

Denmark's central bank has cut its key lending rate to 0.45 percent from 0.60 percent. It's also cut its deposit rate (are you watching, ECB?) to 0.05 percent from 0.20 percent. The European turmoil has fed large-scale purchases of currencies such as the Danish crown and the Swiss franc.

Denmark's Nationalbank has cut its key rate twice in the past seven days in order to maintain the trading band it prefers for the crown against the euro.

1450 BST: Further US Slowdown

The Chicago are Purchasing Managers' Index survey prints at 52.7 in May versus 56.9 in April, edging ever closer to the 50 mark that separates growth from contraction.

US markets are reacting in kind, but the spillover is global and hitting risk assets all over the world. In Europe, we're seeing 30-year bund yields fall below 30-year Japanse government bond yields for the first time ever (1.76 percent to 1.77 percent). German bund futures also touched an all-time high of 145.63 earlier this afternoon.

European stocks have gone red, with the FTSE Eurofirst 300 now down 0.05 percent on the session at 975.3

1355 BST: Messenger shooting

Standard & Poor's has responded to news this morning that Italian authorities were preparing criminal charges against some of its analyst for alleged market manipulation and abuse of privileged information related to the 13 January decision to lower Italy's sovereign debt rating two notches to BBB+ on the same day it cut the ratings of eight other Eurozone members.

S&P says the charges are "baseless" and that it will defend its actions, its reputation and its employees.

1340 BST: Jobs and the US economy

Private data on the US jobs market shows continued weakness in employment recovery. The monthly ADP report, which traditionally precedes the US Labor Department's monthly employment report, showed private payroll additions of 133,000, shy of the 150,000 Wall Street analysts had been expecting.

Meanwhile claims for jobless benefits rose for the fourth consecutive week to 383,000, taking the closely watched four-week moving average to 373,000.

US GDP for the first quarter was also revised to down to 1.9 percent from 2.2 percent following a 26.5 percent plunge in the Q1 corporate profits (the worst three-month period since post-Lehman Q4 2008)

The miss has added to weakness in US stock futures and pared gains around Europe as a result.

Meanwhile, triple-A bond yields continue to fall, with 10-year bunds trading at an all-time low 1.25 percent and 10-year Gilts printing a record low 1.627 percent.

1210 BST: Fitch downgrade

Perennial "first mover" Fitch Ratings has cut the credit rankings of eight of Spain's 17 autonomous regions,. including Catalonia, the wealthiest, and Madrid, the capital region, and put all of them on negative outlook as a result of their significantly increased financial risk

The rating actions reflect the negative economic and market environment in Spain, which has resulted in depressed fiscal revenues, and the structural fiscal deficits of the regional administrations, which will require considerable additional efforts to be reduced, and also the difficulties in accessing long-term funding.

Regions still face significant financing pressure in 2012 as a large proportion of debt falls due in the second half of the year. Fitch understands that central government is actively seeking ways of easing liquidity for the regions and also looking at setting up instruments to facilitate long-term funding at more affordable rates.

1155 BST: Capital flight

Spain's banks lost more than €66bn in capital in March, according to central bank figures, compared to a net inflow of €5.4bn in March of 2011. Bank re-caps just got a lot more expensive as a result, and we don't even know what the outflow for April and May will be until at least September.

1140 BST: Hymn Sheets

Less than 24 hours after saying direct bank recapitalisations from Europe's permanent bailout fund might be a good idea, the European Commission says now that "we do NOT see the possibility of direct recapitalisation of banks from the Eurozone's permanent bailout fund".

This is turning into a bit of a clown show

1130 BST: Quietly weaker

Headline risk has slowed but the bond market drift continues. Spain's benchmark 10-year bonds are hovering around the Maginot Line of 7 percent while we're seeing record low for debt from France (5s 1.26 percent: 10s 2.415 percent), Denmark (10s 1.68 percent) and Austria (5s 1.2 percent, 10s 2.2 percent)

Stocks are holding volume-thin gains of around 0.5 percent to 1 percent across the board, with a 4.5 point gain to 980.20.

1005 BST: Slowing inflation

The rate of inflation around the Eurozone eased to 2.4 percent in May, the slowest pace in 15-months, according to Eurostat. The figures may give further ammunition to those suggesting (inter alia, the IMF) the European Central Bank consider lowering its key lending rate from the current 1 percent.

The Euro traded at 1.2413 immediately after the HICP print, a solid bounce from its overnight low of 1.2354. At this stage, however, even tame inflation data isn't likely to drive currency value.

0945 BST: With or without you

Here's a quick glance at growth rates for Europe's major economies that *aren't* using the single currency: (Hint: all but the UK are growing faster than Germany's 0.5 percent pace in Q1)

Norway: +1.1 percent

Sweden: +0.8 percent

Denmark: +0.3 percent

Poland: +3.5 percent

United Kingdom: -0.3 percent

0925 BST: Nightmares are for dreams ...

... Referenda (at least in Europe) are the reality. The BBC says a "nightmare" scenario for the government in today's referendum on the European Fiscal Pact would be a "no" vote that represents Irish frustration over its economic performance and lack of faith in the current leadership than anything specific about the agreement.


Firstly, the Pact as it's written *will not exist* by the end of the summer. France has vowed to add "growth friendly" clauses and there's enough traction around the rest of Europe (including opposition lawmakers in the Bundestag) on the subject to ensure some watering-down of the Pact's "permanent austerity" language.

Secondly, this *was* a shared initiative of a French/German/Dutch mini-alliance that no longer exists. The Dutch government has collapsed because of the very terms of the Pact that its former Prime Minister Mark Rutte had insisted upon. France has a new President, in part, because of the very terms of the Pact that former President Nicoals Sarzoky had insisted upon. The German government is at its weakest position in domestic politics for at least five years because of the very terms the current Chancellor Angela Merkel had insisted upon.

Thirdly, and perhaps most importantly, an Irish vote that doesn't advance the larger ambitions of the "bill-paying" members of the European Union will simply be ignored. We've seen this twice before and I have no doubt we'll see it again if today's result rejects the Pact.

Investors can comfortably divert their attention elsewhere: the Irish referendum is sideshow.

0900 BST: Senor Draghi Goes to Brussels

He's hardly Jimmy Stewart, but as head of both the European Central bank and the region's risk police force, the European Systemic Risk Board (ESRB), Mario Draghi still worth watching.

This morning he's presenting the ESRB's annual report to European lawmakers in Brussels and talking about the need for unified strategies in address the current crisis (exactly the kind of crisis, it needs to be said, the ESRB was designed to have spotted and attacked several months ago).

Draghi says he's concerned about the way Europe's banks are reliant on secured ECB lending as inter-bank financing dries up (see my post below about the ECB deposit window for a quick solution to *that* particular problem) and calls for a more decisive banking union that includes depositor protection rules.

The reliance on secured ECB funding is acute, but recent data actually suggest some of the most systemically vulnerable banks are starting to find even that level of capital access increasingly difficult. April purchases of government bonds by Spanish and Italian banks has "slowed to a trickle" according to RBS research. In the case of Spain, it turned negative (-€3.3bn).

As bond yields on Italian and Spanish government debt rise (and prices fall) the mark-to-market value slumps and the "collateral power" of those bonds at the ECB window is eroded (resulting in more required margin). The utility of government bonds (particularly European bonds, which pay annual interest) is marginal outside of their use as borrowing collateral. If banks find that utility disappearing, they'll buy fewer of them.

That makes Spain's task of selling government (and regional) debt even more difficult and exacerbates the challenge Spain's banks will face as they seek to raise independent capital to buttress their own balance sheets.

0830 BST: It's the bonds, smart guy

Be wary of "month-end" rallies in equities, particularly here in Europe. We' seeing decent gains to start the session but it's always difficult to know whether the tone is legitimately fundamental or the result of "position closing" on the final trading day of the month. Given the broader macro backdrop, the latter seems much more likely. Here's what Barclays economist Michael Gavin thinks about global equity market direction in the coming months:

...equities are unlikely to find firm ground until bond markets have signaled that Spain and Italy are stepping back from the adverse financial dynamics that have engulfed Greece. However, high bond yields threaten to aggravate public financial and banking-system problems and compound the already precarious economic and financial dynamics facing the region. Until the threat of that dynamic recedes, it seems more likely that equity markets will be undermined by vicious-circle dynamics emanating from the debt market than the other way around.

0815 BST: Here's an idea

Why one earth does the European Central Bank allow member financial institutions to deposit cash at 0.25 percent? Last night nearly €770bn sat dead in Frankfurt while the rest of Europe cries out for stimulus and small business beg for liquidity. Surely the region's banks need deeper incentives to lend - and thus generate revenue that can, in a virtuous circle, generate earnings that can be retained as a form of bank capital? Exploring those incentives alongside the discussions of budget deficit reduction would seem paramount as Eurozone money supply crawls to a halt.

0805 BST: Early reverse

European shares markets are opening with some strength despite the persisent weakness show in US and Asian benchmarks. The FTSE 100 is up aroudn 0.5 percent while the broader FTSE Eurofirst 300 ticked up 0.1 percent to 976.66 immediately after the opening bell. We're seeing similar gains in Spain and Italy alongside a modest 0.2 percent advance for the DAX.

0750 BST: Good Morning

It's hard to argue with "sell in May and go away" when you measure Asian share market performance this month. The MSCI Asia Pacific index fell 0.6 percent today to round out the worst month in more than three years as investors continue to count the cost of the prolonged European debt crisis.

Japan's Nikkei 225 was the biggest decliner among the major domestic bourses, falling more than 1 percent to 8,542.73.

Triple-A rated government bonds remain the favoured destination of risk-averse investors, helping take US Treasury and Bund yield to record lows and lifted the US dollar to a 20-month high against a basket of global currencies.

Financial bookmakers are calling for immediate weakness in European equities at the opening bell in a session that will be dominated by developments in Spain, inflation data from Germany and the Eurozone and the Irish referendum on the European Fiscal Pact.

Bond markets in Europe are repeating Wednesday's pattern of pricing in more risk to peripheral debt and taking German and other triple-A yields to all-time lows. Spain's benchmark 10-year government bonds are currently marked at 6.7 percent.

The single currency is trading at $1.2390 against the greenback after hitting a fresh two-year low of 1.2354 in overnight trading in Asia.