June 20 - The U.S. Federal Reserve's signal it will stop pumping money into the world economy sinks bonds, shares and commodities alike. Kirsty Basset looks at what that means for fragile Europe where bond yields are critical to struggling euro zone countries.
It's being hailed as the end of easy money - U.S. Federal Reserve Chairmen Ben Bernanke giving his clearest indication yet of a timeframe for tapering back the U.S.'s 85 billion dollars a month stimulus program. Reuters Breaking Views editor Edward Hadas says investors are now moving to a "fear on mode." (SOUNDBITE)(ENGLISH) REUTERS BREAKING VIEWS EDITOR EDWARD HADAS SAYING: "What we see is the fear of normalising monetary policy and that means every market that's been helped by very easy monetary policy, quantitative easing is very vulnerable to correction and unfortunately that just means everything" Including the euro zone. Italian and Spanish yields jumped as investors sold off lower rated euro zone debt heavily on Thursday. Strategists say there's a risk of another mini crisis in the euro zone if bond yields continue to rise, and borrowing costs continue to become more expensive. It could mean Ireland and Portugal take longer to exit their bailout programs. But IHS Global's Jan Randolph says the euro zone does have the power to control its own destiny. (SOUNDBITE)(ENGLISH) JAN RANDOLPH, HEAD OF SOVEREIGN RISK AT IHS GLOBAL SAYING: "I think the euro zone issues are very much what the ECB does and more importantly each individual government and how they handle their particular set of challenges Whether it's privatisation, structural reforms, whether it's deregulation or improving competitiveness in the southern euro zone. These are far more important I think than what is happening to the U.S. Fed." While the Fed's move may indicate a U.S. recovery is becoming more likely, it's a different story in Europe. Markit's PMI data out on Thursday showed a slight improvement in June to 48.9 - but new orders are still contracting, rather than growing.