Euro Crisis in Focus as Spanish Yields Hit yet More Record Highs & FTSE loses 2%

<p>The FTSE 100 closed sharply lower at the start of the new trading week, as the euro crisis intensified in Madrid after Spanish yields rose […]</p>

The FTSE 100 closed sharply lower at the start of the new trading week, as the euro crisis intensified in Madrid after Spanish yields rose and Spain was forced to ban short selling of shares for three months in an effort to cool an escalating market situation. Italy followed suit also with their own short selling ban today.

The FTSE 100 closed won 117 pts or 2.1% to hit a new three week low.

As benchmark Spanish 10-year bond yields hit yet more record euro era highs of 7.55%; speculation intensified that more Spanish states would seek government funding.

The moves in Spanish bond yields over the last 48 hours of trading has been a big concern in the markets and a key catalyst for a bearish turn in equities that has seen the FTSE lose over 3% in the last two trading sessions.

There are fears that Spain is edging closer to being forced to seek a full scale bailout, having secured €100bn to help recapitalise its banks.

The Bank of Spain this morning reported that GDP contracted 0.4% in Q2 from a contraction of 0.3% the previous quarter.

In the afternoon session, the Spanish regulator announced that it was banning short selling of shares for three months from today, and this immediately triggered a short covering induced reversal for the Spanish IBEX Index, which closed the day down 1%.

Alongside the Spanish debt concerns we also have the arrival of the Troika in Athens tomorrow, where officials will start to delve into how far behind the country is in terms of implementing austerity and meeting fiscal targets having been left in limbo for a month as the country failed to instil a government at first time of elections.

Depending on how far behind the country is to meeting the targets handed to it to enable it to be bailed out, we could start to hear more murmurs of a terms renegotiation or threats to delay the next arrival of bailout funds.

As a result, the euro hit 11-year lows against the Yen whilst the US Dollar Index also touched a two year high, echoing the risk off start to trading this week as investors looked to reduce holdings of risky asset classes such as financial and commodity stocks.

The FTSE 350 mining sector lost 3% in reaction whilst the banking sector also fell 3.2% as two of the more badly beaten down sectors. It is these two sectors that are provided much of the drag on the UK Index.

The FTSE 100 quickly fell through near term support levels of 5595, opening the UK Index up for a potential return to medium term support levels of around 5430 and 5330.

Domino’s Pizza results in line
Domino’s Pizza delivered in line half year results of like for like sales growth of 5.2%, as diners continued to order from the famed pizza chain as a cheaper alternative to dining out and to accompany watching the Euro 2012 football tournament. Profit before tax rose 13% to £21.5m including Germany – which is a new market for the company – but when excluding Germany, profits grew 15%.

The firm continues to be somewhat of a defensive favourite amongst investors as austerity bites and wage growth is sapped. Domino’s shares have rallied an impressive 26% so far in 2012, but with a strong run up to today’s announcement, shares have failed to advance further. Shares lost 1% as traders locked in their gains.

No was no real economic data of note today and so we look ahead to manufacturing and services data out of Europe and Germany tomorrow, whilst UK GDP on Wednesday and US GDP on Friday will also take a large focus.

Later this week we will also see UK banks Barclays and Lloyds both report earnings too.

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