13.44 The US trade deficit narrowed 4.9pc in April to $50.1bn, as imports and exports fall from the record highs they reached in March. Imports slipped 1.7pc, while exports fell 0.8pc.
13.31 Nicholas Spiro, managing director of Spiro Sovereign Strategy, says markets need to be careful to keep an eye on France, even as the other watches Spain unravel:
Markets have been so transfixed by Spain's crisis over the past few weeks that they have taken their eyes off the first round of France's parliamentary election on Sunday. Investors are relatively insouciant about what, as little as a month ago, was considered a crucial political event in the eurozone.
France has been given a lift by the election of Francois Hollande as President and Greece's inconclusive election result. The former is already paying political dividends for Mr Hollande's Socialist party while the latter has helped turn France into a relative safe haven in the bond markets.
Mr Hollande was not expecting a honeymoon, but he is enjoying the closest thing there is to one at a time when France's economy is flat on its back and the eurozone is at risk of falling apart. However we remain wary of French debt. French banks' exposure to the eurozone's periphery, in particular Italian private and public debt, remains a key source of risk as the eurozone crisis intensifies.
13.23 Spain's deputy PM Soraya S?enz de Santamar?a says no ministerial-level meeting is planned, nor any formal European meeting on the nation's banks, but concedes that he doesn't know what every minister has in their diary. No decision has yet been made, he claims.
13.01 Angela Merkel has waded in to the Spanish situation, but said only that they won't force it to take a bailout. She said Germany won't pressure any country to apply for eurozone aid, but that rescue measures were in place if needed.
But Channel 4's Faisal Islam has a slightly different take:
12.51 Spain has said that the first independent report into the health of its banks - which it said it would wait for before deciding whether to ask for EU bailout money - is due out on June 21. The second is due July 31. Meanwhile, reports continue to suggest that the country will go back on its previous statement and ask the EU for cash to recapitalise its banks tomorrow.
12.09 The situation in Spain is taking centre stage in the eurozone drama, so we've pulled together a timeline of the crisis that's hit the country so hard. In 2008, a long period of expansion in Spain came to an end and a lengthy property bubble burst. Today, the banks have 800,000 unsold properties on their books.
11.53 The fake Angela Merkel has a nagging feeling that Spain's PM Mariano Rajoy has a question to ask...
11.37 While we're on the topic of bank bailouts: the chairman of Cyprus Popular Bank, the country's second-largest lender, says it will "realistically have to seek" an EU bailout to recapitalise. Michalis Sarris, a former finance minister, said that there's no longer stigma to it anymore. That will cheer Spain, which, Bruno Waterfield says, is looking increasingly likely to announce a plea for EU cash tomorrow:
11.21 German government spokesman Steffen Seibert has declined to comment on whether Spain would request a bank bailout this weekend, but said instruments exist to provide help if needed.
It is the decision of the Spanish government alone whether it seeks financial help... The eurozone instruments are in place.
10.48 The ECB could cut its overnight deposit rate to 0pc, says policymaker Ewald Nowotny. He also said the central bank had no plans to restart hoovering-up sovereign bonds.
The ECB's current policy of flooding the banking system with hundreds of billions of euros in cheap loans means market rates now gravitate towards its overnight deposit rate rather than its main interest rate as they do in normal times. Cutting the deposit rate to zero would take rates as low as they could go, something the ECB was previously reluctant to do.
As an example of how huge an effect a change in the rate would be, last night the ECB looked after ?757bn in deposits.
10.34 Faisal Islam suggests that the IMF report due out on Monday isn't the only good reason for Spain to time a bailout plea for this weekend.
10.27 A young woman who used to work in real estate has just been interviewed by BBC News on the state of the Spanish housing market - the cause of the country's banking problems. She says people are trying to sell homes for half what they cost them 8 years before. Ouch.
10.23 After reporting that Spain was preparing to seek a bank bailout from the EU this weekend, Reuters is now quoting a government spokesperson as saying she was unaware of any pending announcement. Has the eurozone rumour mill got ahead of itself, or is the government talking down the rumour until markets have closed? We'll bring you more on this as it comes in.
10.15 UK producer inflation data is out, and it slowed to its lowest rate for more than two years in May. Analysts had expected a 0.1pc rise, but instead we've got a 0.2pc drop. Amit Kara of UBS says:
The producer price numbers are clearly below market expectations, but they only really relate to goods prices in the overall inflation index and as such I don't think that will have a material impact on the policy decision.
More interesting is the Bank of England inflation expectation survey which has climbed. I think given the persistence in inflation this will be of some concern to the MPC. The threshold for another round of QE is a little bit higher as a result.
10.07 Those of you who are fans of a good eurozone portmanteau (Grexit, Merkozy, etc) will enjoy this Twitter hashtag that's broken out since rumours emerged that Spain would be making a plea for cash from the EU this weekend.
10.05 This tweet from Fabrizio Goria sums up the Spanish situation pretty well: a downgrade from Fitch, rising bond yields, a struggling banking sector, rumours of a plea for cash from the EU this weekend.
09.57 Simon Denham, chief executive of Capital Spreads, points out that central bankers around the world have failed to give markets much cause for optimism this week. And there's precious little economic data due out today, the last trading session before the weekend, to pin hopes on:
The ?will-they-won?t-they pump more money? is over for now as all major central bankers this week have made it clear this week that they are not the answer to all our economic problems. The inaction from the ECB, BOE or the Federal Reserve chairman Ben Bernanke has given markets a little time to pause for thought this morning.
09.38 The IMF's due to publish its report on the health of Spanish banks on Monday, and is expected to say it will take a cash injection of at least ?40bn to recapitalise the lenders (forget for a moment that Fitch says ?100bn, Roubini Global Economics predicts a cost of up to ?250bn, JP Morgan says ?350bn and RBS believes it could hit ?450bn).
Spain itself says propping-up Bankia alone will cost ?23.5bn. It also says it's determined to wait 10-15 days for the release of independent reports on the state of its lenders before taking any action. But rumours this morning suggest it will be forced to make a plea for help sometime this weekend. It makes some kind of sense: with that kind of bad publicity on the way, it could be their only option.
09.23 Markets in Europe have slid further during the first hour of trading. Disappointment in a lack of action from Ben Bernanke last night and increased concerns over the escalating debt crisis in the eurozone, as well as Spain's struggling bank sector, have further dampened the mood.
Ilya Spivak, currency strategist at DailyFX, comments:
European shares are following Asian bourses lower in early trade, with S&P 500 stock index futures pointing to more of the same as Wall Street comes online. Traders are responding to ambiguity about future stimulus efforts in Federal Reserve Chairman Ben Bernanke's testimony to the US Congress. Investors were looking for concrete guidance on a QE3 program in light of the latest stretch of disappointing US economic data, hoping additional asset purchases might help the nascent US recovery offset headwinds to global growth from a recession in the Eurozone and a slowdown in China.
Besides disappointment on the Fed stimulus front, a pickup in Eurozone sovereign concerns compounds downward pressure on risky assets after Fitch slashed Spain's credit rating. Spreads between periphery 10-year bond yields and benchmark German equivalents are broadly wider and Eurozone sovereign CDS rates are on the upswing.
09.11 Reuters reports that it's been told by two anonymous EU sources and one from Germany that Spain is expected to make a request for aid during the weekend for its struggling banking sector.
"The announcement is expected for Saturday afternoon," one of the EU officials told Reuters.
08.43 Greece's top tax investigator says that IMF head Christine Lagarde was right to urge Greeks to pay their bills. Nikos Lekkas told German daily Die Welt:
I agree wholeheartedly with Ms. Lagarde. Tax evasion in Greece amounts to 12-15pc of gross domestic product. That's ?40bn-?45bn each year. If we could raise even just half of that, Greece's problems would be solved. Our politicians have begun to understand this.
08.32 Peter Oborne warns that those financiers who advocated the creation of the eurozone 15 years ago may be unwilling to admit failure, even though remaining in the single currency is no longer a rational choice for many countries:
08.05 European markets have opened down on Spain's downgrade.
07.35 The Bank of France has cut its Q2 growth forecast to -0.1pc. The central bank says business sentiment fell to 93 in May from 95. The trade balance fell to -?5.8bn from -?5.72. Analysts had expected a much better -?5.5bn.
07.31 Spanish bond yields have jumped 17 basis points this morning to hit 6.2pc, remaining over the 6pc 'danger level'. It comes after Fitch downgraded the country by three notches last night. Italy's yields up 9bps to 5.7pc.
07.10 German exports fell 1.7pc in April (month-on-month). Analysts had predicted a fall of 0.7pc after a 0.8pc rise in March. Imports fell 4.8pc, massively missing expectations of a 0.1pc fall after a 0.9pc rise in March. The trade balance falls to ?14.4bn from ?17.4bn.
06.54 Asian markets have been hit this morning, led by Japan.
Mainland Chinese shares moved higher by midday.
06.50 Meanwhile, David Cameron has promised to 'protect' Britain from German plans for a eurozone superstate with common banking and political systems. Rowena Mason and James Kirkup report:
Underlining the sceptical message, George Osborne hinted at a referendum on Europe following the euro crisis, saying any ?reshaped? relationship with the EU might have to be put to British voters.
06.45 However, the ?100bn cited by Fitch for the cost of bailing out Spain's banks looks like a conservative estimate when you compare it with some. Ambrose Evans-Pritchard highlights that some economists have begun to doubt whether the EU bail-out machinery can raise such large sums at all:
Megan Greene from Roubini Global Economics says Spain's banks will need up to ?250bn, a claim that no longer looks extreme. New troubles are emerging daily. The Bank of Spain said on Thursday that Catalunya Caixa and Novagalicia will need a total of ?9bn in new state funds.
JP Morgan is expecting the final package for Spain to rise above ?350bn, while RBS says the rescue will "morph" into a full-blown rescue of ?370bn to ?450bn over time - by far the largest in world history.
"Where is the money going to come from?" said Simon Derrick from BNY Mellon. "Half-measures are not going to work at this stage and it is not clear that the funding is available."
06.38 The downgrade puts Spain in the same league as Bahrain and Kazakhstan, and just one notch above Iceland, which is still emerging from its own crisis.
06.32 Fitch downgraded Spain by three notches last night, citing a serious mishandling of the debt crisis by European leaders. Louise Armitstead reports:
Spain?s credit rating was cut to BBB from A leaving the eurozone?s fourth biggest economy languishing just above junk status.
Fitch said the cost of bailing out its banks is likely to cost around ?60bn (?48.6bn) but could rise to as much as ?100bn, more than three times higher than the ?30bn in its last ?baseline estimate?.
Fitch hiked up its estimates of government debt levels from 82pc of GDP by 2013 made at the beginning of this year to 95pc by 2015. The rating agency said that it no longer expected Spain?s economy to return to growth next year but remain in recession for 2012 and 2013.
06.30 Good morning and welcome back to our live coverage of the European debt crisis.
Debt crisis live: archive
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