With Equities falling once again today (Tuesday) and the FTSE close to breaching new lows for the year, you don't have to look very far to find out the reason why. As has been the norm for the best part of the last eighteen months, worries over Eurozone sovereign debt continue to dominate proceedings. Greece has (unsurprisingly) admitted it is unlikely to be able to meet the strict austerity criteria ordered by the other EU states, and politicians and central bankers seem unable to find a consensus from where we can move forward.
To quote William Hague, "the Euro is a burning building with no exits".
It is going to take some momentus policy decisions between now and November to try and stem the tide, as falling stock markets will do nothing to help the battle to save the single currency.
One such decision could be that the Bank of England cut base rates once again - to just 0.25% - and rumours have been circulating the market that this could be on the table when the MPC (chaired by Mervyn King) announce rates this Thursday. It has been suggested that this could be used either in conjunction with, or instead of, an increase in the BoE's Quantitative Easing programme. Interestingly, a number of leading banks and building societies have been cutting the already meagre deposit rates over recent weeks....maybe there is something in this rumour after all?
It is important to note that this would, once again, be an unprecedented move by the BoE. And this cut would leave no room for any further easing. It would certainly be a bold move, and one that could quite easily add to the panic rather than calm market nerves.
The European Central Bank also meet on Thursday. An overdue reverse of the rather bizarre hikes in the ECB rate earlier this year could well be on the cards. Some ECB hawks will certainly be pointing to above target inflation numbers as justification for leaving rates on hold. But this is of secondary importance. Markets need some positive news, and failure by the ECB to cut rates would heap more adverse sentiment on an already edgy and depressed market.
Thursday is yet another crucial day in how the rest of the year will pan out.
