5th August 2011

SWIP: Week in Review: Judgement Day

Here we go again. The sovereign debt crisis has become Europe’s very own Terminator – relentless, deadly and forever coming back. Markets are certainly frightened. This week, Italy and Spain were in the firing line. Yields on their ten-year debt were at euro-era highs – and perilously close to the 7% mark that signalled bail-outs for Greece, Ireland and Portugal. Attempts by politicians to calm market jitters were largely ineffective. Silvio Berlusconi, Italy’s prurient prime minister, blamed outside agents for the increase in borrowing costs; his Spanish equivalent asked markets to concentrate on the fundamentals. But their protestations were lost in the rush for the exits; equity markets around the world slumped. The European Central Bank purchased government bonds for the first time since March to try to shore up confidence. Its efforts were fruitless. European Union leaders are frantically trying to find solutions. If they fail, it could be “hasta la vista, baby” for the eurozone. 

Moody’s blues
It’s an odd way to get things done. After one of the most surreal and high-stakes games of chicken since the Cuban missile crisis, US politicians finally agreed to raise the nation’s debt ceiling. The hike of $2,1000 billion – equivalent to spending $3 million a day since Jesus was born – meant the US could pay its bills, thereby staving off default. It also gets to keep its triple-A rating – for now. What is usually a fairly straightforward process was hijacked by the Tea Party – boasting more than a few Mad Hatters of their own – and their anti-taxation agenda. For many, they were the ultimate victors of the farce, with the Democrats agreeing to $2,400 billion in cuts over the next ten years in order to get the deal done. For others, they were just a bunch of snollygosters.

And the hits keep on coming
But while politicians were making crazy, markets were becoming increasingly worried about the health of the global economy. Recent data have been dreadful. The UK’s growth forecast for the second half of the year has been reined in again. Manufacturing activity has contracted, raising doubts about the government’s plans to rebalance the economy. Consumer spending is on the wane. Shoppers in the US have also been counting the pennies, with spending in June falling for the first time in two years. Speculation is mounting that the world’s largest economy could be headed back into recession. You get the picture. 

Throughout all this, equities were about as sought after as broccoli at a BBQ. A number of below-forecast earnings reports from the corporate world did little to enhance their appeal.

An awful week for the market, then, that saw the FTSE 100 index plummet 7.3% to close on Thursday.

And finally... 
Some of you can feel a little more regal this weekend. Swiss scientists have revealed that over 70% of British men are related to Egyptian Pharaoh Tutankhamun. Boffins reconstructed the boy ruler’s DNA profile based on a film made for the Discovery Channel. Their findings showed that King Tut – the monarch with the most petulant moniker since Queen Tsk - belonged to a genetic group known as hapogroup R1b1a2. This catchily-titled profile is shared by more than half of all western European chaps, and around three-quarters of the men from these fair isles. "It was very interesting to discover that he belonged to a genetic group in Europe - there were many possible groups in Egypt that the DNA could have belonged to," said one egg-head. But they failed to confirm whether the erstwhile ruler was the purveyor of the continent’s first string of fast-food joints – Pizza Tut.

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