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The yield on the Portuguese ten-year bond, essentially the cost of borrowing for the Lisbon administration, is now above 8% – the highest it has been for eight months. The spike in the cost of borrowing for Portugal was triggered when the finance minister Vitor Gaspar resigned on Monday, explaining that he had lost confidence in the country’s austerity programme. This prompted traders to sell equities as they are afraid the eurozone debt crisis could make another return.
In London the banking sector is down 2.6%, as investors are worried about the level of exposure British banks have to indebted European nations. If the cost of borrowing for other eurozone countries rises, we could see banks fall further.
The latest eurozone services purchasing managers' index (PMI) came in at 48.3, below analysts' expectations for a reading of 48.6, compounding traders' worries about the fragile state of the eurozone.
At 1.15pm (London time) the US ADP employment change is released, and could be an indication of Friday’s unemployment level. If the report is strong, US equities could fall as it may spark tapering fears.