EC President sparks chaos with admission that EC still needs to resolve EU debt crisis

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Global equity markets had an awful day yesterday following an admission from the President of the European Commission that the markets still need to be convinced that the EC are taking appropriate steps to resolve the European debt crises. He called for a "re-assessment of all elements".

The comments from the President of the EC, Mr Barroso, rattled the markets as investors interpreted this as an admission that the plans to resolve the European debt crisis are too complex and incomplete. European Central Bank President Mr Trichet also acknowledged that there is a "particularly high" level of uncertainty about the economic outlook. His comments have caused great concern for investors and in particular those that lend to banks.

As the credit worthiness of some European governments continue to be questioned, lending costs across Europe will continue to rise. The increase in lending will create more uncertainty as banks in these countries might not be able to borrow money. If banks find it difficult to borrow then will be reluctant to lend money, a scenario that could plunge the global economy back into a recession. 

In what was a dramatic day, European markets fell by more than 3%, the Dow Jones had its worst day in 3 years - dropping 500 points down in yesterday's trading session. The S&P tumbled 4.8% and has dropped 11% since July 22 while in Asia the sell off continued overnight with the Hang Seng index dropping 4.65%. In the UK Lloyds Banking Group's shares dropped 10% and Barclays were down 8% yesterday.

Even in the face of rising speculation about the possibility of QE3 in the US, the Euro was the biggest loser yesterday and was sold off against both the US Dollar and Sterling. Amidst all the chaos, Sterling was the stand-out performer. It reached a 16-week high against the Australian Dollar, a 7-week high against the New Zealand, a 9-week high against the Canadian Dollar and 10-week against the Euro.

If this wasn't enough, today's data calendar features US non-farm payrolls which has the potential to calm the markets or create more panic. In reality the markets are not just reacting to President Barroso's comments but growing uncertainty that the global economic recovery is running out of steam.