Euro Fails To Strengthen In Spite Of Strong Spanish Bond Uptake, As Italy Slashes 2012 Growth Forecast

Published: Friday, 20 April 2012 09:00 BST - Written by Toni Johnson

STORY LINK Euro Fails To Strengthen In Spite Of Strong Spanish Bond Uptake, As Italy Slashes 2012 Growth Forecast

Yesterday’s session brought relief for global investors as the latest Spanish debt auction saw a strong uptake for the troubled Iberian state’s government bonds. The Spanish treasury had been attempting to shift €2.5bn of its gilts, but managed to sell some €2.54bn worth of debt at significantly reduced yields. The rate of interest paid by Spain on its benchmark 10-year bonds dropped markedly from 5.743% to 5.403%, suggesting that panic levels regarding the country’s debt situation are receding.

However, it was far from plain sailing for the single currency yesterday, as Italy released worrying 2012 growth forecast figures which predicted that domestic economic activity is set to shrink by 1.2% this year. Previous estimates had foreseen a contraction of 0.4% this year, so the announcement took investors by surprise. Italian Prime Minister Mario Monti also revealed that as a consequence of slower growth, Italy would not be able to balance its budget next year, as he had previously promised. The figures suggest that the Italian economy is struggling to cope with the stringent austerity measures which the technocratic government has enforced since Silvio Berlusconi was deposed as Prime Minister.

Looking ahead to this morning’s European session, the major risk event of note comes in the form of UK Retail Sales data for last month, which analysts anticipate will reveal an annualised increase of 1.3%. A strong showing appears possible for the number, following last week’s British Retail Consortium figures, which showed that British shop sales had increased by a healthy annualised amount last month, due to better than expected weather and the absence of any public holidays. March 2011’s counterpart number, which last month’s data will be juxtaposed with, was the weakest month for retail sales in the whole of last year, providing further potential for a relatively strong print today, which would go some way towards convincing investors that the UK’s economy may have avoided slipping back into a double-dip recession by expanding in the first three months of 2012.

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