The Euro was under further pressure on Friday morning; after rating agency Moody’s downgraded Italy by two levels to Baa2 from A3 overnight. The currency fell below $1.22 today, having declined 0.7% during this week as the downgrade leaves Italy just two notches above junk status, just a couple hours before its latest bond auction. The downgrade pushed Italian 10-year bond yields back above 6%. Analysts suggest that Italy’s downgrade could be followed by further rating cuts in other countries, adding more concerns about the euro-zone debt crisis.
Nevertheless Italy’s borrowing costs fell after the auction today, selling 5.25 billion euro ($6.4billion) of both long term and short term debt. Three-year Italian yields fell to their lowest since May (well below 5%) just as two- and five- year borrowing costs, decreasing 17 basis points and 4 basis points respectively.
Further important news overnight was the declining Chinese GDP data, showing a growth of 7.6%, well down from its first Quarter performance (8.1%) and 8.9% in the final three months of 2011. On the one hand the GDP growth in world’s second largest economy has slowed to its lowest rate since 2009 but on the other hand the weak data could pave the way for further monetary stimulus by the Chinese authorities. The latter would be beneficial for equity markets.
On the bright sight, the sterling has risen sharply against the Dollar in the afternoon and was trading above 1.5500, up 0.75%. Also the FTSE 100 performed better in the last few hours of trade, closed at 5666, up 58 points (1 %) from Thursday’s close.